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BUSINESS

ENVIRONMENT

Edexcel BTEC Level5
Virangani
Saibo
Higher National Diploma in Business Management &
Human Resource Management

Table of Content
Introduction
LO1 Understand the organizational purposes of business
1.1 Identify the purposes of different types of organizations.
1.2 How should an organization approach to manage objectives of different
stakeholders? Explain using organizational example/s.
1.3 Explain the responsibilities of an organization. Identify the different
strategies used to fulfil responsibilities.
LO2 Understand the nature of the national environment in which business
operate
2.1 Discuss how different types of economic systems have been emerged to
allocate resources effectively. Discuss their validity in modern business
environment with examples.
2.2 Assess the impact of fiscal and monetary policy on business
organizations and their activities.
2.3 Management of responsibilities is a critical issue of a business. Describe
LO3 Understand the behaviour of organizations in their market environment
3.1 Explain how different market structures determine the pricing and output
decisions of businesses.
3.2 Illustrate the way in which market forces shape organizational responses
using a range of examples.
3.3 Judge how the business and cultural environments shape the behaviour
of a selected organisation.
LO4 Be able to assess the significance of the global factors that shape
national business activities
4.1 Discuss the significance of international trade to a country giving special
emphasis to Sri Lankan business organizations
4.2 Analyse the impact of global factors on businesses, giving special
emphasis to Sri Lankan context. Use relevant facts / figures / examples as
applicable.
4.3 Identify laws, rules and regulations applicable for consume protecting in
Sri Lanka
Conclusion
Reference

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INTRODUCTION
Business environment is very important to an organization which will help the firm to identify
opportunities and getting the first mover advantage. Besides that, it can also improve performance of an
organization. The companies that continuously monitor their environment and adopt suitable business
practices are the ones which not only improve their present performance but also continue to succeed in
the market for a longer period. Environmental understanding helps an organization in improving their
image by showing their sensitivity to the environment within which they are working.
Environment of a business involved the internal and external factor that influencing a business decision.
Internal environment are the factor that will affect the business directly, which involve customer,
employees, shareholders, competitors and supplier, stakeholders. External environment refers to the
factors that influence the organization indirectly, which involve political, economic, social technology,
legislation, environment and demographic.

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Architects. achieving results and standards of performance. There are many different types of organizations that are set up to serve a number of different purposes and to achieve variety of needs. Public sector organizations are usually set up in the interest of the community or the society by the government and also public sector organizations are financed by government funds. However different organizations have different objectives. An organization is an arrangement of people. by the people working on their behalf or indirectly by government sponsored regulators. loans. Non-profit oriented organizations means in the broadest sense an organization in which no part of any net earnings can grow for the benefit of any private shareholder or individual. Police. Control: The organizations are controlled by the owners themselves. Local councils and Government departments We can categorize organizations under different factors: Ownership: Private sector organizations are usually set up for personal gain by individuals and financed by shares. Legal Status: Sole proprietorship is an organization owned by one person normally referred to as a proprietor. ‘A work organization is a social arrangement for the controlled performance of collective goal’ (Buchanan and Huczynski.1 Identify the purposes of different types of organizations The purposes of creating an organization is to satisfy needs and wants and also to achieve a common objective which could not be able to achieve individually and to develop the country and the society and to create a safety environment in all terms. An organization performs its functions as an economic unit or a system to meet the above requirements. it means pricing strategies rely on setting a product or a service price to attain a specific programmed net profit percentage. Builders and Fast Foods Non-profit organizations: These organizations want to help all people in the society without any profit Eg: NHS. 2004). it is also a formal structure of relationships. Trade Unions Commonweal Organizations: This sort of organizations provide their services to all members of any given population Eg: Fire department. Partnership organizations are usually operated by two or more individuals who want to share the costs and responsibilities of running an organization 3 . pursuing common goals. The proprietor has many different responsibilities within the organization. responsibilities and authorities through where specific objectives are achieved. overdrafts and other personal sources of finance. In simple terms the purpose of an organization is to serve our needs and wants. What they do (Activity): Manufacturing good and providing Healthcare services Profit or Non-profit Oriented: These organizations are Profit oriented. Universities and Red cross Mutual-benefit organizations: Individuals join together to pursue their own self-interest Eg: Clubs.LO1 1. some organizations are profit oriented organizations these organizations look for higher profits for the organization owners and some organizations are non-profitable organizations this sort of organizations are more concerned in providing a service to the society than earning profits for the organization. The purposes of different types of organizations:     Business Organizations: To make profit in a socially standard way Eg: Airlines.

Small scale organizations of a certain size which falls below certain criteria in terms of annual income. Government Funding and by issuing shares to the market. The informal organizations are flexible and loosely structured and relationships may be undefined and also the membership is spontaneous and with varying degrees of involvement. Medium scale demands on an intensely managed landscape which needs a regional landscape planning system which balances the social economic needs with geo-biological conditions. Technology: Some organizations have a high technology usage compared to other organizations for an eg: Window cleaning company this kind of companies use very low technology regarding to Telecommunication companies. Formal and Informal Organizations: The formal organizations are deliberately planned and created. Profit Maximization: Most of the owners and shareholders aim possibly to gain more and more profit to their organization every year. whether it’s a large scale or a small scale organization the objectives of the organization depends on the age of the organizations and also on the prevailing environment Survival Relationship with other organizations Break-even Profit Maximization Main Objectives of an Organization Service Provision Profit Satisficing Sales Growth Market Share Survival: This is a short term objective when trading is difficult some organizations may make little or no profit mostly small scale organizations or when new organizations enter the market or even during crisis period when some organizations try to stay in the market until time improve. A profit maximising organization seek to make investments in physical 4 . privileges and liabilities that are distinct from those of the people who work for the organization. Co-operative organizations are owned by the workers or by the members who buy the products or use the services that the organization offers. Source of Finance: Borrowing. There are some main objectives of an organization. The motive for operating a co-operative is to provide services not to gain profit. concerned with the co-ordination of activities hierarchically structured with stated objectives the specification of task and defined relationships of authority and responsibility. number of employees and total value of assets.Corporations (Companies) are organizations that has been granted legal status rights. Size Oriented: It means to access the large scale data sources efficiently and automatically it is necessary to classify these data sources into different domains and categories.

000 sales during the next six months of trading. Eg: By the end of the year all goods has to be sold out. record the progress and also could keep a record of the organization completed assessments will enable to measure the organization achievements. • There should be a time limit and a date when the objective should be achieved or reviewed. When you’re a large organization the organization could benefit from the economies of scale. human capital (eg: employees) and advertising etc. And also when you’re a large organization the organization even might plan to open new branches. Eg: During the month of October a hotel might have set its objective as filling 60% of its hotel beds a night. Profit Satisficing: In small scale organizations owners do not like to work for longer hours so the small scale organizations aim to make enough profit so that to keep the owners of the organization comfortable. where you do not need to visit the shop to buy what you want but instead you could go online and select the products you want and get it delivered at the convenience of your door step. Organizational objectives gives a clearly defined target. it would be wrong to think of profit maximisation as a short-term motive. this could act as a warning as well as a spur so that when an organization sets a specific target to its employees they would achieve it without falling behind. Break-even: Means making enough money to cover the total costs of producing and selling goods and services and running the organization although the organization has no profit or no money lost. start trading abroad or even buy out one of their competitors. usually it is a quantified statement which means it could be a numerical value. Relationship with other organizations: Means help achieve other aims by joint initiatives. M – Measurable • The organization can put a value to the objective as the achievements can be checked. R – Realistic 5 . Eg: £10. for an example online shopping. To achieve these targets plans could be made so that the employees of the organization could be motivated. These effective SMART organization objectives are as follows: S – Specific • The organization needs a clear statement about what the organization does.capital (eg: machines). Sales Growth: Most of the organizations want to sell more products every year and expand their business as they believe that the survival of an organization depends on how large the organization grows. These targets enable the organization to measure the progress towards the goals that the organization has stated. A – Attainable • All those concerned in trying to achieve a target by working hard towards it. Market Share: Mostly all organizations aim to increase the market share they have each year by winning customers away from their rivals. Service Provision: Mainly tries to offer new services or improve the current services that the organization has so that the organization could attract more customers. This is one of the methods of surviving on breaking even over a certain period. T – Time-bounded • The objective of the target should be sensible and challenging but it should be also achieved with the resources available. These goals should be set using SMART objectives.

Organization purposes could be categorized in many different ways as follows:
 Economic objectives vs Social objectives / (Non-economic):
Organization is an economic entity which carries out different economic activities and its primary
goal is to pursue economic objectives such as profit maximization, enhancing the market share,
improving the rate of sales growth etc. Making profit or profit maximization is the most important
objective among the economic objectives of an organization. It is an absolute necessity for every
organization as for following reasons:
 Profit is not only the reward for risk, but it also serves as a motivating factor.
 It is the most important factor for the existence of the organizations.
 Profit measures the success and failure of organizations.
 Profit provides and internal source of finance for growth and development.
 It indicates market position of the organization.
 It also helps to encourage the employees and stakeholders.

 Primary Objectives vs Secondary objectives:
The primary objectives of organizations are survival and growth, making profit has a vital role in
achieving the primary objectives. Sales maximization and growth, cost reduction are directly
related to the primary objectives. Secondary objectives of organizations include quality of
products, social welfare, employee welfare, compliance with law and regulation, goodwill and
innovations etc.

 Short-term, Medium-term and Long-term Objectives:
Any objective which is to be achieved within one year or less than one year is termed as short
term objectives while medium term objective is to be achieved within five years’ time. Long term
objectives are connected with more than ten years of time.

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1.2
How should an organization approach to manage objectives
of different stakeholders? Explain using organizational examples
There are number of groups with interest in a business organizations activities. A corporate stakeholder
is a party that can affect or can be affected by the actions of the business as a whole. Those groups
without whose support the organization would cease to exist. “Any person, group, organization or system
who affects or can be affected by an organizations actions is known as stakeholder”. All organizations as
in the public or private sectors, profit or non-profit organizations have stakeholders. Stakeholders are
individuals or groups who have an interest in how the organization performs because it effects them
directly as they have a stake in the organization. Traditionally the owners of the organizations for an
example shareholders in a public sector company or the government in the public service situations were
seen as the most important stakeholders and satisfying their requirements was the sole reason for the
existence of an organization. Stakeholders can be categorized in to three:


Internal Stakeholders: These stakeholders have a direct and immediate impact on the
organization (Eg: Employees and Management)
Connected Stakeholders: (Eg: Shareholders, Customers, Suppliers and Financers)
External Stakeholders: This effects the business or the organization indirectly (Eg: Government,
Local community, Pressure groups and Competitors)

Below are a few stakeholders with their objectives and how these objectives can
help to satisfy these stakeholders
Employees
Employees are the workers employed by the organization and they are individuals who are directly
involved in the production of the goods and services and also the employees directly influence the
organization profits since they are involved in the day to day operations of the organization. The
employees are also interested in the organizations survival and growth as their jobs depend on it. It is
also important to keep the organization employees satisfied with the organization services that been
provided for them. Employees satisfaction could be defined as how much the employees happy about
their work places and which could be shown by the employee’s loyalty and commitment towards the
organization. In order to keep the employees satisfied the organization will have to offer them with
different treatments: Secure jobs, fair treatment, benefits, salary increments, working conditions, training
and career opportunities and bonuses and prizes. The employees also want protection from the
organization in terms of security from the customers who might abuse them as a part of human rights.

Management (Managers and Director’s)
Management are those who are individually involved in the day to day operations in the organization.
They are very responsible for decision making. Occupying a higher position takes on all the weight in
society and in their own eyes and they care about each of their responsibility area. The management
have a special interest in existence of the organizations. Essentially management are the once who are
responsible for planning and directing the work of a group of individuals and monitoring their work. Just
like the employees even the once who are working in the management are interested in their increase in
salaries, safe and comfortable working environment, bonuses and prizes, maximising compensation,
autonomy and responsibility. Handling top positions in the management brings income and power.

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Shareholders
Shareholders are who hold an ownership interest in the organization. Their prime interest is return on
their investments whether it’s a short or a long term investment. The shareholders are interested in
earning capital gain of the organization and its annual dividend. If the organization shares were
purchased for speculative purposes then may be the shareholders will be interested in the growth of their
prices and they might look into further resale of shares to cash by differentiating the costs of buying and
selling. Therefore the objective of a shareholder includes share price growth not limited, growth in
dividend and growth in the value of shares. What satisfy them is by profit maximization, increase
dividends, capital gain and how the organization is been operated.

Customers
Customers are individuals who wants to buy goods and services from an organization. Customers are
very important stakeholders because they create demand in the market. Thus every organization should
ensure that they do not compromise their customer needs. The customer’s interest is to get the right
product at a reasonable rate with good product quality. The customers also want to get their products as
quickly as possible as they do not like waiting and also they see to the importance of guaranteed security
and health items. To satisfy customers what they look for is value for their money through quality
products, reliable services, good customer care, fair prices, good functionality of the products and quality
services.

Suppliers
Suppliers are once who supply goods and services to the other organizations. These organizations
supply raw material or semi-finished products for organizations and to provide services, interested about
what the organization ordered from them regularly and punctually paid in accordance to the terms of the
contract. Also supplier can be dependent on the products that they course locally, nationally and
internationally. Eg: mark and spencer has suppliers globally. Suppliers generally wants secure contracts,
fair prices for the products and services, maximize profits from contacts, timely payment of customer bills
and strong working relationship.

Financer’s
Financers issue company loans and cooperate bonds to the organization, it’s important to do so as the
financers help the organization to meet the capital budgeting needs. Credit rating is also the financer’s
primary concern as they need to guarantee that their money is secure. The financer’s are interested in
timely refunds and interest. The financer’s can keep a track of the organizations determining whether it’s
effective using funds received and whether they pay. To satisfy the financer’s financial statement, liquidity
ratio, organization investments, portfolio financing, cost of capital, receiving repayment on loan amounts
and by earning interest.

Government
Government is the various levels of geographic location where the organizations operate, the
organization should not harm the outside environment. The government plays a major role in any
business environment as it plays a role of a regulatory and supervisory. The government also makes
sure that all organizations abide by the existing legal provisions. Whether the organization establishment
legal or illegal and whether it operates according to the country rules and regulations. The local and
national government is in charge of creating more jobs for its citizens and also to pay taxes to the
government. The government also set laws and regulations for govern trading and how an organization
should act and deal with people. The government also ensures that the organizations adheres to strict
laws like company’s acts, health and safety regulations, trading legally and revenue and customs. By
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after sale facilities. Pressure groups are people who are concerned about the environment how the organizations look up to it. marketing and promotions etc. Local Community There are individuals that make up the local area for a business organizations where they start their operations. Competitors are interested in financial statements. environment pollution and contribution by the organization to the community. These stakeholders may be affected directly or indirectly by the action of the organizations. 9 . licensing. These pressure groups look if the organization is ethical or unethical and if the organization managers the waste and the recycle items. the monopolistic markets are not good as they look but there are new technology organizations which need more competition in order for them to help with the market development and marketing their products. The local community around the area needs jobs. organizations and NGO’s. noise pollution and water pollution etc.paying taxes. The main interest they have is the survival of the organization and also their failure might help them but as well as their survival too (more market share available). market position. soil pollution. coverage. product range. They are also concerned about if the people involved in the manufacture of products the organization sells get a fair treatment by the organization. sales. good shopping choices and also some modernisation done to the area by the organization. Pressure Groups Pressure groups are organizations that advocates certain issues such as environment and treatment of animals etc. business opportunities and make an impact to the environment etc. Basically business operates in an environmentally sensitive way by engaging with the local. customer base. competitive advantage. for an example environment friendly pressure group makes sure if any organizations do any kind of activity to harm the environment such as air pollution. These community groups can influence the people in an area for career opportunities. local and national government and the municipalities of community. innovation. standardization and protection of consumer welfare will satisfy the government as the organization meet the relevant legal requirements. Competitors Competitors are organization which are competition for the customers. technology. national and international associations. Local community is interested in employment. These competitors make use of competitive practice used by the organization and make an impact on their organization business success where they gain potential mutual benefits as in they use strategic alliances and also they develop new products to be introduced to the market. Pressure groups can be formed to prevent an organization expand its premises or even setting it up in the first place. NGO’s can organise corporate responsibility projects and charities etc. business strategies. market research. For an example if we say that there is an clothing store around a certain location the local community around that clothing store could determine whether the store should be situated in that area or they can up hold or tarnish the reputation of the business by not depending on their preferences.

as the actions of the enterprise will have to face social consequences that’ll effect different groups like stakeholders. Social responsibility is expected from all types of different organizations: Local Government: Provides services to the local community by trying to preserve or improve the character of that community by council tax or by business rate payers but at a fair cost. To achieve the organizations stated goals the organization needs to effectively represent rationally ordered instruments. Universities and Schools: Students who has good abilities and qualifications will prove that their beneficial to the society.1. No organization wishes to be considered as a socially irresponsible organization but tries to act responsible on social issues. 10 .3 Explain the responsibilities of an organization. Uniformed guidelines generally followed by organizations. but the responsibilities varies to different individual organizations. effectively and benefits most people at all times by balancing the approach for a responsible organization. The management is concerned with the way the enterprise will interact with the environment. These responsibilities could differ from each organization to organization due to different types of organization and the manner in which way it functions. To ensure that the organization operates efficiently. Better emphasis should be given to vocational training for students. An organization cannot start any organizational operations without implementing organizational responsibilities. Identify the different strategies used to fulfil responsibilities. Following are the responsibilities of an organization:      Social Responsibilities Environment Responsibilities Ethics and Business Management Responsibilities Public Relations and Corporate Image Social Responsibilities Public Relations & Corporate Image Environment Responsibilities Responsibilities of organizations Management Responsibilities Ethics and Business Social Responsibilities Social responsibility means an obligation that organizations have towards people and environment in which the organization operates.

population and stress) which are inflicted on the wider population. Organizations are rarely controlled effectively. the public pay a higher price although the businesses pay taxes they receive government support. as most of the shareholders large institutions like pension funds. Social responsibility. Social responsibility towards the organization is constrained by the law thinking that it could benefit in encouraging the employees loyalty and skills. their members of a wider society which is why the organization exists. When there’s a need for a compromise or a balance is required each of these groups have their own objectives. Respect for workplace and work practices. If the cost of labour turnover is higher than the cost of running workplace crèches then if the labour turnover has reduced by a workplace crèches if so then the crèches can be financially justified. Hospitals and schools exist because healthcare and education are seen as desirable social objectives by the government. 11 . This argument has different assumptions there are two assumptions for this:   The legal ownership is paramount over all the other interests in a business and there are a few legal or moral rights over the wealth. Disposal of business assets. There are two reasons in favour of this:   Since the shareholders owns the business the assets of the company are shareholders property. The second one is that the businesses relationship with the wider social environment is with the economy. Provision of a coherent career and training structure so that people can better themselves these are also social responsibilities of an organization towards their employees. forced or voluntary these are ways of recognising manipulative markets who are mostly large corporations. Shareholders: The management of an organization is considered to have only one responsibility and that is to maximise wealth for the organizations shareholders. their labour keeps the organizations operational existence and as citizens. Organizations producers two outputs:   Goods and Services. shareholders are passive investors. Training employees are beneficial as its level of workforce skills effects the country’s economy productivity. Members of the society has a disadvantage when there’s a trickle down when trying to maximise profit. education and health in which the businesses benefits. workers and customers. managers. infrastructure. Most of the shares are owned by pension funds because of this most of the beneficiaries may not be wealthy. Employees value the certainty and regularity of wages thinking that employing organizations honour the contact of employment. and the business depends on the relationship that the organization and these groups share with each other. Stakeholders A stake is what the company does. maximising wealth increases the state tax revenues that disburse on socially desirable objectives. When taking decisions for the beneficial of the company shareholders will not be in favour with the management. shareholders are once who owns the business but an organization also has suppliers. Employees: Employees are internal stakeholders. The social consequences of its activities (eg: traffic.Pollution Control: Industrial organizations are developing a commercial process for re-cycling waste materials. health and safety. The public pays for roads. Workplace crèches are great assistance for working women but employers will not introduce them without consequent commercial benefits. so their own duties adversely affect the resources on activities that do not make profit. handling equipment or hours worked these all implies as social responsibilities. the management has no moral right on this as it effects the reducing of the return available to the shareholders. Management’s job is to maximise wealth as it benefits the society.

Social and ethical objectives are pursue by many organizations to make products that last a certain number of years to prevent health hazards by controlling pollution and to co-operate with the authorities to identify these in the products sold. The reduction of CFC’s in aerosol cans have led suppliers to introduce rages of goods that are environmental friendly. Modifying management behaviour is social or non-economical these are secondary objectives. health and safety at work place etc. There are different assumptions about ‘society’ and about the relationship between individuals and organizations   The public is a stakeholder in a business and it’ll succeed because of the wider society and by giving charity is one way to encourage the relationship. traffic disturbance efforts should be made. Elected Authorities: Political representatives are external stakeholders they can affect the management in different ways. b. Suppliers: Social responsibilities of multinational companies are distributed over several countries. 12 . Professional Bodies: Controlling is done by the management where members of the professional body have standards of ethics and conduct. but only the commercial objectives are override if either the inbuilt culture of the organization or the voice of public opinion is strong in the market.) and agreements with trade unions. This is a way of promoting like advertising by doing it this way we could bring consumer awareness to the business.Customers: The customers pay for the output of goods and services of an organization. Public attitude towards some consumer goods sector to get direction from the government and lobby groups that’ll make an environmental impact of an organization activities. There are two more other factors that influence management behaviour other than economic and non-economic objectives: a. Boundaries: these restrict the management’s freedom of taking any action because of government legislations (no pollution. By giving charitable donations and artistic sponsorships could be taken as a useful medium of public relations by doing this it’ll make a good impact on the business. noise. A supplier of high technological items will not allow to re-export the goods as the enemies of the nation are where the supplier is based this is called a condition of sale. Neighbours: To prevent environmental pollution including noxious gas. this is a way of interacting socially among individual objectives of different stakeholders. Responsibilities: Internal guidance and control mechanism are not a form of obligations that company undertakes but charitable donations and contributions to the life of local communities are responsibilities that they’ll undertake. as already been mentioned by legislation. Objectives and Responsibilities Ansoff (1987) suggested that a company has a number of different objectives:    The total resource conversion process is a primary objective which is financially or economically aimed at the efficiency and the effectiveness of the organization. the climate of public opinion by influencing and by trying to pursue commercial organizations to follow particular line or policy.

Responsibilities of Environment Agency Flood Risk Management 13 . Water The Water Resource Act 1991 and the Water Industry Act 1999 were brought in when the UK water industry was privatised and there are number of offences relating to discharges into ‘controlled water’.Environmental Responsibilities Legislation and Regulation The law on environmental protection is mainly covered in the Environmental Protection Act 1997 (EPA) and the Water Resources Act 2007 The EAP act features the concept of integrated pollution control (IPC) the aims of this is to prevent pollution and to ensure that the businesses are conducted with minimum risk to human health and the environment. The chief regulatory bodies under IPC is ‘Her Majesty’s Inspectorate of Pollution (HMIP)’ for air. water and land which is being polluted mostly by industrial processes. IPC’s main objectives are to minimise the release of pollution and to neutralise the harmful effects and to develop a pollution control for the environment. This was created to the new agencies ‘to prevent or enhance the environment taken as a whole’ to promote ‘the objective of achieving sustainable development’. Organization are enforced to pay a landfill tax on hazardous waste through a licensing system and to prevent toxic waste from being simply ‘dumped’ on poorer countries there should be a control over the import or export of waste. disposed of or kept in a way where it pollutes the environment or harm human health. The environment can sustain the damages of pollution at some point but it also ensures that the polluter pays for the damages caused. The Goal of the Environment Agency The Environment Agency of England and Wales and the Scottish Environment Protection Agency were created in 1996. Another air pollution act is ‘Clean Air Act 1993. Advance technical solutions offering the best practical options to encourage the adoption of environment. waste management is encouraging firms to:      Prevent or reduce waste production Develop products that do not harm the environment Develop appropriate techniques for disposing of dangerous substances Use recycling methods Use waste as a source of energy Waste mustn’t be treated. The ‘Environment Agency and Local Authorities’ are in charge of preventing the other sources of pollution.’ which consolidates earlier legislation (introduced after some spectacular London smog’s of the 1950s) Waste Handling and disposal of waste has been incorporated in the English Law now.

trees. Balancing the effect of power between the competitors in the market. Air Quality Management This agency regulates air pollutants into the atmosphere it includes emission from large scale agricultural activities but now the air pollutants from agricultural activities will be unregulated. Recent legislation changed the enforcement action that a pollution event can go through Magistrates Court and a fine of £50. if going through Crown Court then a unlimited fine should be payed and five years of imprisoned. Ecological Issues Ecological issues can affect the business either directly or indirectly. the highway agency and the other agencies. UK governments air quality strategy in England and Wales Environment Act 1995. Systems like sluices. Genetic Diversity 14 .The agency is responsible for maintaining flood defences and providing flood warning systems.000 should be payed or five years of imprisoned. to be implemented by the local authorities. Ecological issues relevant to business as follows: Resource Depletion Availability of raw materials through damage soil. the environmental damages can be a disadvantage to the competitors because of the additional costs required for cleaning up the products and the processes. Shell was concerned because of a consumer boycotting in Germany to sink the disused oil platform in the North Sea this means that the consumers can be affected by the ecological issues. water. animal and marine species may influence business operations through resource depletion. Major sources of pollutants like transport are to be measured at the national European and local level. Failing to discharge without the benefit of a consent or permit can lead to criminal prosecution. The agency grants special license for special waste like radioactive. Pollution Control Discharges done to the aquatic environment. weirs and locks are used to control the water level and also the agency issues regular flood warnings and maintains a map of areas liable for flooding. plant life. coconut trees or mining areas etc. These can affect the business directly and the pressure from customers or staff as a consequence over an ecological issue can be an indirect impact on the business. a formal consent of discharge or case of large. the costs or the availability of resources can be affected for an example companies are not allowed to use natural habitat or special scientific interested areas for any kind of profitable business purposes like cutting down teak trees. mineral wealth. energy availability. chemical and medical materials. air and land is controlled by this agency. Waste Regulations Licensing of sites such as landfill and incineration facilities and regulatory authority for waste management is handled by the agency. Any individual or company cause a pollution or have infringed any license condition of theirs can be prosecuted and have waste handling licenses revoked by the court. air pollution is controlled from the small industries by the local authorities. complex or potential damages done by industries through a permit.

Kyoto Treaty of 1997 was an attempt to control pollution on the environment by emission of ‘Greenhouse gases’ particularly carbon dioxide which have been linked to climate change. Waste management has become the new subject to discuss about even in international agreements arrived at governments concerned. With average world temperature increasing and sea levels rising this could cause disastrous effects on agriculture and flooding of low-lying areas. Waste Whether it’s nuclear waste from power stations or industrial or domestic waste in landfill sites. Instead of CFC alternatives has been developed. the polluter pays principle was adopted by the OECD (Organization for Economic Co-operation and Development) in the early 1970s and it’s been broadly accepted. Ozone Depletion Ozone depletion is also expressed in a similar way. The national governments target for legislation has become handling of waste. Modifications needed to production processes and consumption patterns which are been identified as contributory factors. but organically produced foods are becoming more profitable and the consumers are willing to pay a premium price. The success of bottle water in UK is simply a triumph of marketing. quality of drinking water has a massive increase in the size of the bottled water in UK. Existence of economic and environmental factors ‘carbon credit’ could be offered to the countries to exchange it with each other and 15 .Firms like pharmaceuticals. Developing high-yield disease resistant plants for an example wild species are a critical resource. Climate Change Effects of excess carbon dioxide in the atmosphere is a debatable term when unnatural weather is produced. This may be an issue of bearing upon distribution policies. As a result of motor car exhausts and impact of the road vehicles quality of air is a much discussed topic. use of CFC for blowing polystyrene foam used as insulation by the building industry has been banned in some countries and it’s been phased out in many countries. for an example dumping waste on marine life and on the beaches in many different countries are being discussed to bring new waste management regulations. To remedy these problems. biotechnology. agriculture and food industries are relevant for genetic diversity. Pollution Concerns Pollution concerns are the centre of most who worries about the environment. the sea and the ocean. new breeds of animals and new types of medicines that depends on the availability of wild species. Noise pollution is also an important fact this has an impact on the operations of all forms of businesses.     Businesses are under pressure curtail on activities like water table. Genetic resources can be drawn by developing new strains of plants. waste is also in the centre of attention. The pollution of land through landfill policies and the long-term damages done by the industries to the land it occupies are required to change some of the policies during the next few years. Acid Rain Acidification of water supplies and fish bearing lakes and rivers this happen due to acid rain and because of the damages of the forest. The pollution that occur because of the industries make a big impact on the natural environment and the agri-system because of the political pressure to constrain the effect of industrial production have increased enormously.

The emphasis is given to Improve on infrastructure and land use patterns rather than carbon emission. Certain scarce on potential wasteful or dangerous materials for instance ‘carbon tax’ will discourage the demand for new energy efficient products. while larger manufactures are socially responsible. Destruction of natural ecosystems and wildlife habitats are targets of international concerns. In the counties of the developed world energy saving programmes are underway.  Manufactures of washing machines and dishwashers have new models that use less water and time 16 . Green Concerns Different sectors of the industry has vary impacts on Green issues. building and constructions are relevant to the secondary sector. Energy Resources Concerned over climatic changes.some countries will increase the overall emissions and the system is open for abuse. Consumer Goods Manufactures may be seen as:    Damaging the environment or social institutions to meet consumer demand Producing dirty products Using dirty processes  Using scarce raw materials Some products which are manufactured to contribute for the environment improvement. The Primary Sector Industries in the primary sector of the economy like mining directly involve with the physical environment. Some of the concerns are given below:      Deforestation Threats to wild creatures Replacing a natural habitat containing a diversity of species with a monocular where only one strain is bred Pollution Health and safety of produce  Poor working conditions and wages Efficient and effective use of finite resources by diversification of supply and recycling are appropriate to promote Green policies. Usage of energy has been controlled less of potential than seems possible for an example coal gives only up to 40% of its potential into electricity. energy resources and environmental impacts on energy usage. The Secondary Sector Economy. development of plants and projects on combined heat and power systems serving neighbourhoods or industrial plants. Environment legislations are under scrutiny on primary legislations.

Environmental auditing. Small businesses use traditional methods to manufacture greener modern processes. Not only in organizations but code of ethics should guide people’s behaviour in everyday life.  Car manufactures are producing car models that have a high degrees of recyclability and durability Detergent manufactures make products that are kinder for animals or that performs more effectively with smaller amounts. demand for such products are increasing due to using less energy and fewer non-renewable resources. Small Businesses By consuming large number of raw materials and producing large number of waste. Service Provider Service providers are less relevant to green issues but they still consumes resources and generate waste. Green issues are becoming significant for small businesses. companies use this as a voluntary code of conduct. there are three levels of ethics: Macro Level: Issues are about the roles of a business in the national and the international organizations of society. It’s difficult for the small scale businesses to compete with large scale companies as for their greater command of power and resources that demand for green products have increased in some areas. investments and contribution to the welfare of staff and customers.   When producing products for green ‘niches’ become more effective to the large enterprises and take flexibility to create green processes and systems. Same decisions of choices of suppliers. Ethical values. Individual Level: Issues of individual’s behaviour and actions in an organization A statement of policies. principles or rules that guide behaviour is a code. But if make a list of ethics for us it’ll include:  Obey the law 17 . the enterprise acts like a ‘filter’ deciding which product will reach the customer. ethical principles are not enforced by the law but law can incorporate moral judgment. Ethical Practice Organizational issues on social responsibilities and issues of business practice relates to ethics. green training. principles or rule of thumb that guide decision making is seldom taken explicitly. The Tertiary Sector Retailing The green consumer is dealing directly with the enterprise. Ethics and Business Ethics is a code of moral principles that people follow in respect for what is right or wrong. waste management and pollution control specialists are very proliferation of green marketing practices. Corporate Level: When formulating and implementing strategies organizations focus on ethical issues.

The sale of defective products without appropriate warnings in some countries and companies trading internationally discover infringers between human rights and legal jurisdictions are some of the differences between legality and ethicality. Tobacco Ethical dimension on how the organization and the people working in that organization brings their own values. Leadership and organization systematic methods are included for education. company objectives or a staff handbook. political opinions and personality etc. Some of the approaches to ethics are as follows. law. Ethical decisions are important as penalties in organizations now. The company values the standards of aspirations (including law). provide guidance and consultation. Methods like education. personal values like religious and non-religious beliefs. Unethical manager’s privileges and benefits should be withdrawn and sanctions should be applied for their actions. oversee compliance. operating principles. lawyers and HR specialists etc. enforce.     Be fair Avoid harming others Prevent harm to others Respect the rights of others help those in need Do not lie or cheat The organizations should have an ethics committee which consist of internal and external directors to institutionalise the ethical behaviour of the employees. Activities are develop the standards. compliance systems are been educated. Business Ethics Ethical codes are rooted in a wider value system to know what is right or wrong. The staff are lawyers and the standard set is also the law standard. A compliance based approach: The letter of law and that violations are prevented. ethos is knuckled under to external standards and the objective is to keep it to the law. train and communicate. To prevent damaging ethical lapses into powerful human impulses of moral thoughts and actions help operations of an organization by these ethical codes. Payment of interest to lenders of money The sale of harmful products eg. control and penalties. directors and junior staff Decisions about priorities for an example in respect of public expenditure Loan chargers eg. detected and punished in organizations and the legal consequences of unethical behaviour define the idea of social responsibility that affects the business this also avoids problems like bribery. identify and resolve problems and oversee compliances are some of the activities that the employees will need to develop in them. Some of the approaches to ethics are as follows. 18 . investigate. following are conflicting views and continued debates:      Criteria for distribution of profit Relative pay and rewards for employees. lawyers are the originators. Code of ethics the term is interpreted in many different ways it’s also known as code of conduct. People have solitary self-interested behaviour. Values. guideline. are the originators. Integrity based approach: Promoting ethical behaviour in an organization makes assumptions which people go about their work. audits. principles of conduct. ethos is to choose ethical standards to enable the legal and responsible conduct of objectives and the management. Law education is given with compliance system. Managers and the lawyers are the staff. Integrated values into company systems. handle reports of misconduct. Existence of such codes may increase the ethical behaviour but by clarifying expectations. People are socialised with values in their behaviour. To have effective ethical codes provisions should be made. audits. control and penalties reduce employee discretion. and even professional values like code of ethics and medical ethics etc.

Following are some of the area of distinctions: Extortion: Suitable payments should be made in case some countries officials intend to threat companies to complete the closure of local operations. Management Responsibilities The management is not only responsible for the owners of an organization but also to the following stakeholders as well:      Employees Customers Suppliers Competitors The Local Community  The General Public (the government) Responsibilities to Employees Good pay and working conditions and good training and development schemes should be converted into practice and this should extend into:   Recruitment Policy Redundancy and Retirement Policies Recruitment: When recruiting new individuals to the organization this needs to be done carefully because if the new recruitment is bad at the job and doesn’t perform well then the company will have to sack them. Because of undesirable political policies managers are concerned about organizational activities which will lead to this. And some point mangers may feel liberty in adopting such local customs. Bribery: Payments taken for services which companies are not legally entitled for as services there need to be a certain distinction to be drawn.Ethical Problems Facing Managers Modern ethical standards are imposed as a duty to guard. Ethical problems also are concerned about the payments by companies to officials particularly officials in foreign countries who have the power to help or hinder the payers operations. Gifts: Giving gifts are an essential part in some cultures as it indicates a civilised way of negotiating in some circumstances but for the westernised people this might look like an ethically dubious way. preserve and enhance the value of enterprises for all who are touched by it including the general public. Careful recruitment methods should keep demoralising incidents like dismissals as its inevitable in any large organization. The managers have a responsibility to ensure that the public and company employees are protected from the dangerous areas like products and production places. The Consumer Protection Act 2007 and EU legislation generally is beginning to ensure that ethical standards are similarly enforced in the UK. Some of the ethical problems that managers face during practice are very numerous. Dangerous working conditions or inadequate safety standards in products by cutting down the cost as a result of increasing profits. There is a distinction between competing aggressively and competing unethically with other companies. Grease Money: Deliberate stalling by official’s lead multinational companies unable to obtain services which they are legally entitled for so by doing cash payments to the right people may allow to oil the machinery of bureaucracy. 19 . There are also ethical issues in corporate governance and finance places. Product liability litigation is a legal threat that it may be more effective deterrent than general ethical standards.

abuses of a dominant market position and restrictive trade practices. Provide training or fund for training so that the employees could use other skills in another organizations or industries. The organization should have good pension schemes. Organizations should take steps to help get jobs for the staff who are redundant. Arrange job fairs for employers to come display the job offers they have and discuss job opportunities with redundant employees. Responsibilities to Customers Ethical responsibilities towards customers are by providing a product or a service with desired product quality that a customer expects and dealing fairly and honestly with the customers. Some organizations have training courses and discussions groups for employees who are going to retire by providing these facilities it could help them plan their future time constructively. anticompetitive practices. Responsibilities regarding competitor are solely directed by ethics.Retirement: The staff who are retiring should get five years of service from the organization. The organization size would give a considerable power to the buyer and one ethical guideline would be that the organization should not use its power unscrupulously for an example by forcing the supplier to reduce the prices and threatening to withdraw the business Another ethical guideline is to not delay the payments to the supplier beyond the agreed credit period as the supplier rely on getting prompt payment accordance to the terms negotiated with the customer. monopolies. All information obtaining from the supplier and potential suppliers should be kept confidential. By contributing towards the wellbeing of the community for an example by sponsoring local events and charities or by providing facilities to the community to use 20 . There is a law surrounding the conduct of fair trading. All suppliers should be treated fairly by giving some potential new suppliers a chance to gain some business and by maintaining long term relationships that’ve been built up over the years with some suppliers and suppliers who are established for a long time should not be replaced unless there’s a commercial advantage to the organization. Measures should include:     Counselling individuals by giving them suggestions on what they might try to do. Responsibilities to competitors Ethical responsibilities should exist towards competitors. Responsibilities of Suppliers Organizations responsibility towards its suppliers are expressed in terms of trading relationships. Responsibilities towards the Wider Community Organizations are a part of the community that serves and it should be responsible for upholding the social and ethical values of the community. Redundancies: This is a difficult problem that organizations face even though the organization shows an ethical responsibility towards their employees in case the business has to close down and if the employees lose their jobs at times like this the organization should try to redeploy many staff as possible without making them redundant and necessary training should be provided to the staff so that they could improve in their skills and use them in a new job. Providing good redundancy payment which will help employees to set up a business for them or which will help them survive until they find a new job for themselves. mergers.

Well established companies will encourage investors to put up more money into the business and the suppliers to grant longer credit. A corporate image is needed because when launching a new product to the market the customers are not aware about the product and not wanting to buy the product either so then a corporate image will give the identity the public needs. To win public and political support companies wish to have favourable corporate image that they could subsequently use. The attempt British Nuclear Fuels to promote an image of deepest concern for the environment. Environmental Pressure Groups Environmental pressure groups have typically exerted pressure through three main types of activity. To avoid unfavourable legislation to prevent adverse publicity or to prevent pressure from stakeholder groups. A good corporate image have a variety of benefits for management to strengthen their customer loyalty. The efforts of independents TV companies to promote an image of quality programme makers to win a bid for franchises by strengthening their chances of winning. Kiddies playground). And also by responding constructively to complaints from local residents or politicians (eg. Creating customer awareness by developing a corporate image would be more appropriate than strengthening customer loyalty. The public relations. gathering and providing information’s Direct Action: From peaceful protests and the semi-legal activities of organizations such as Greenpeace and Friends of the Earth varying through to environmental terrorism of more extreme organizations. and the experience and attitudes build up by customers over the years makes it easier to promote the desired corporate image to the customers. Most of the people like to work in a company that has a good public image in their minds (eg. advertising. Organizations delivery vehicles causing local traffic) Public Relation and Corporate Image Corporate Image Corporate image means the public’s attitude towards the company or the image of the company in the minds of the general public or more specifically in the minds of the company’s potential customers.   Information based activity: Mounting political lobbies and publicity campaigns. Fur traders attempting to counter the adverse publicity built up against them by the efforts of animal rights activities. 21 . There are many various reasons to why an organization might attempt to build up a corporate image as follows: Organizations may want to strengthen customer loyalty by corporate image of good quality products and services for customer interests this could be fostered. Working for MAS or John Keells Holdings). Examples for this is:     Oil companies attempting to establish an image of caring for the environment for the future needs of society.(eg. companies develop a corporate image of social responsibility. Because of the corporate identity an employee’s attachment towards its company can be strong.

Discuss their validity in modern business environment with examples.1 Discuss how different types of economic systems have been emerged to allocate resources effectively. water pollution. There are three basic questions in economic system. Now most countries have laws to cover land use planning. Many governments actually have their own peculiar systems which suit their needs and their aspirations. Ancient systems were pretty simple. Trade was done using systems like barter trade which was very straight forward. You only exchanged what you had for what you need. Partnership and Consultancy: To improve environmental performances groups aim to work with businesses to pool resources. and the destruction of animals and natural habitats. However in modern monetary economies the setting is quite intricate. LO2 2. An economic system defines how the various entities in an economy interact. Basically there are three main economic systems. Government decisions are driven through most of the aspects of a country’s economic activity and this is the opposite of a centrally planned activity. Market negotiations are mainly made by investment decisions and allocation of producer goods these are some of the characteristics that defines market. There were few treaties and almost no real rules of engagement. Modern economic systems are about more than just trade. Employees increase pressure on the businesses in which they work partly for their own safety and in order to improve public image of the company. Huge established companies have a lot of influence in the way business is done. They define the values of a society or a country as well as the political structure of that society. smoke emissions. demand and prices of goods and services that are determined in a free price system which guides solely by the aggregate interactions of a country's citizens and businesses and there is little government intervention and central planning. Media Pressure mostly focuses on large scale disasters and technical issues such as global warming and newspaper and television reports generate a wider spread on public awareness on the issues concerned. production and distribution are based on supply. Market economy assumes 22 . Treaties and agreements are made every day and governments have made numerous laws to define trade and warranting the need for a more comprehensive definition of what an economic system is in modern times therefore an economic system can be described as an organized system in which a particular government chooses to allocate goods and services in the country. The system sets the rules of play for all participants in an economy and defines how they are going to interact with each other. But consensus has it that all these systems can be classified into just three main ones and those three economic systems are as follows:    Market Economy Command Economy (Planned Economy) Mixed Economy Market Economy A market economy is an economic system in which decisions on investment. Which goods are to be produced? How are the goods going to be produced? Who is going to get those goods and services that have been produced? Effectively the structure of an economic system seeks to answer these questions. Legislation growing pressure from the green or green influenced vote has led to mainstream political parties taking these issues into the programmes. People have defined economic systems in various ways it includes government policies which is very important especially in modern times.

Their only constraint is the price they are willing to buy or sell for. It also makes sure that everyone has equal access to the markets. but it may also refer to laissez faire or free market anarchism. as soon as demand increases of a particular item. collectives and autonomous state agencies that acquire and exchange capital goods and capital markets. it works to the benefit of the economy over the long run. The term free market economy is sometimes used synonymously with market economy. Prices rise and fall freely depending purely on the laws of supply and demand. More competition you face the more you have to monitor the relation of the pricing you have with your competitors. Characteristics of Market Economy Private Property: Most goods and services are privately owned. For example.that the market forces such as supply and demand are the best determinants for a nation. For example. Market economies can range from hypothetical laissez-faire and free market variants to regulated markets and interventionist variants. The government should have a strong role in guiding both the market economy and the inequality of the market produces. utilizing a free price system to allocate capital goods and labour are few things that a market economy consist of. In the global marketplace market economy is clearly the choice of today. government exerts 23 . who are competing for the best product at the lowest price. Although the motive is selfish. sell and purchase goods and services. businesses. prices rise as a result of law of demand. In other words. accurately depicting true supply and demand at any given point in time. Competition: The market economy uncourageous competition. and also there are models that involve public ownership of means of production where capital goods are allocated through markets. In the means of production the market economies does not logically presuppose the existence of private property. By developing marketing campaigns we could differentiate ourselves from our competitors so that we can carve out our own niche in the marketplace. they have the right to get profit from their property ownerships. most of the market economic activities are allowed to driven by market forces. Owners can make legally binding contracts to buy. Because of the competitive pressure keeps prices moderate. although the amount of government intervention is considered to be optimal for efficient economic operations. Limited Government: The role of government is simply to ensure that the markets are open and working. Because of the auction system that fairly prices all goods and services. Market economies doesn’t exist in the pure form in reality as the society and the government regulates them to varying degrees. sell. consumers and workers are free to produce. Engaging in government intervention to a certain extend when it’s needed to provide stability. Freedom of Choice: In a free market place owners. Motive of Self-interest: Paying the least for the goods and services consumers’ need the market is driven by everyone trying to sell their goods or services to the highest bidder. The most existing market economy is that of economic planning or self-directed activity which is also classified as mixed market economy. However. and ensure that goods and services are provided most efficiently. As competitors see that there is a need of additional profit to be made they start production adding it to the supply. Most of the developed nations have mixed economies. there are exclusions to what is considered private property. lease or rent their property. Various types of cooperatives. In an efficient market all buyers and sellers have equal access and same information upon which to base their decisions. and consumers. This lowers prices to a level where only the best competitors remain. and the amount of capital they have. Employee owned enterprises based on selfmanagement are some of the variations that are involved in market socialism. System of Markets and Prices: A market economy is completely dependent on an efficient market in which to sell goods and services. This competitive pressure also applies to workers. who are competing with each other for the highest paying jobs. it is in charge of national defence so no other country can destroy the markets. That's because. Whatever the type of business you have competition is faced in any form.

subsidies. In some instances the term planned economy has been used to refer to national economic development plans and state directed investment in market economies. The government watches to make sure no one is unfairly manipulating those markets and that all information is distributed equally. which unfairly restrict competition. In a traditional model of planning decision making would be carried out by workers and consumers on the enterprise level. The businesses and individuals who are more efficient and innovative will accumulate more capital. Therefore the society reflects the values of those people and organizations. They can invest this in other efficient and innovative companies giving them a leg up and leading to an overall higher quality of production. grants. The most efficient producers will receive more profit than less efficient ones. Good and services are produced in the most efficient way possible. Planned economies are held in contrast to unplanned economies such as the market economy and proposed self-managed economy where production. pricing. In addition the caretakers of those people are also at a disadvantage because their energies and skills are taken up with caretaking not competing. distribution. This innovation will spread to other competitors so they too can gain more profits. Innovation of new products will meet the needs of consumers in better ways than existing goods and services. Command Economy (Planned Economy) A planned economy is an economic system in which inputs are based on direct allocation. However there are many people in a society who are at a natural competitive disadvantage such as elders. children and mentally or physically challenged people. Less extensive forms of planned economies include those that use indicative planning as components of a market based or mixed economy in which the state employs "influence. A market economy rewards those who are good at being competitive." This latter is sometimes referred to as a "planned (Command) market economy". Market Economy Advantages Since a market economy allows the free interplay of supply and demand it also ensures that most desired goods and services are produced. 24 . This explains why a market economy may produce private jets for some while others starve and are homeless. Economic planning may be carried out in a decentralized distribution or centralized manner depending on the specific organization of economic institutions. Market Economy Disadvantages A market economy functions through competition.penalties on monopolies. and taxes but does not compel. and investment decisions are made by autonomous firms based upon their individual interests rather than a macroeconomic plan. Businesses will only produce those goods that they could gain profit from. An economy based on economic planning (either through state association of worker cooperatives or another economic entity that has jurisdiction over the means of production) appropriates its resources as needed so that allocation comes in the form of internal transfers involving the purchasing of assets by one government agency or firm by another. Innovation is rewarded and producers will come up with innovative and much more efficient methods of production. That's because consumers are willing to pay a higher price for the things they want the most. Even though a society based on a pure market economy must decide whether it's in a larger self-interest to set aside resources to make sure that they meet their needs or whether to let them just fall by the wayside.

There is no domestic competition in these industries. They can execute massive projects. They aren't slowed down by lawsuits from individuals or environmental impact statements. housing. It has social priorities such as mobilizing for war or generating robust economic growth. The master plan is broken down into shorter term plans to convert the goals into actionable objectives. That usually includes finance. The central plan sets the priorities for the production of all goods and services. The efforts of leaders to control this market can ultimately weaken the support for the central planning authority. Command Economy Disadvantages This rapid mobilization often means command economies mow down other societal needs. The government creates laws. However people won't ignore their needs for long. Command Economy Advantages Planned economies mobilize economic resources quickly. and meet social goals. The previous leadership is disbanded. Often the transition is violent. That eliminates unemployment by promising to use each person's skills and abilities to their highest capacity. The government owns the monopoly business in industries deemed essential to the goals of the economy. The new government nationalizes private companies. utilities and automotive. Its goal is to supply enough food. and on a large scale. It starts with a five year plan to set the overriding economic and societal goals. labour and natural resources in the most efficient way possible.Planned economies are usually categorized as a particular variant of socialism and have historically been associated with Marxist Leninist states and the Soviet economic model. create industrial power. or executed. But some argue that the Soviet economic model did not actually constitute a planned economy but instead a comprehensive and binding plan did not guide production and investment therefore the term administrative command economy emerged as a more accurate designation for the economic system that existed in the former Soviet Union and Eastern bloc highlighting the role of centralized hierarchy decision making in the absence of popular control over the economy. The government allocates all resources according to the central plan. All the workers were assigned new jobs according to the government's assessment of their skills. Characteristics of a Command Economy The government creates a central economic plan for all sectors and regions of the country. exiled. The goal is to use the nation's capital. and other basics to meet the needs of consumers in the country. Its previous owners were sent to "re-education" classes. Command economies can wholly transform societies to conform to the government's vision. 25 . Businesses follow the plan's production and hiring targets instead of responding to the free market. They often develop a shadow economy or black market to buy and sell the things the command economy isn't producing. regulations and directives to implement the central plan. powerfully. These include quotas and price controls on all goods and services. For an example workers are often told what jobs they must fulfil and discouraged from moving.

maintenance of employment standards. Governments in the mixed economies often provide environmental protection. Although the consumer doesn’t get the complete liberty but at the same time the government can regulate the prices in public interest through public distribution system. In the post war era European social democracy became associated with this economic model. are set up. And in private sector industries all the consumer goods industries. Mixed Economy A mixed economy is variously defined as an economic system consisting of a mixture of either markets and economic planning. Planners have a hard time coordinating with each other to meet the needs of the domestic market. Around the world the most prosperous countries with the highest average standard of living tend to have mixed economic systems with democratically elected governments. 26 . Supporters view on mixed economy as a compromise between state socialism and free market capitalism that is superior in net effect to either of those. standardized welfare system and maintenance of competition. But in most cases "mixed economy" refers to market economies with strong regulatory oversight and governmental provision of public goods although some mixed economies also feature a number of state run enterprises. Centrally planned economies also have trouble producing the right exports at global market prices. Personal Freedom: Under mixed economy there is full freedom of choice of occupation. Meeting the needs of international markets is just too complex. Also prices are set by the central plan and so can't be used to measure or control demand. It's difficult for the central planners to get up to date information about consumer needs. Businesses focus on following directives and are discouraged from making any autonomous decisions. unemployment and growing income and wealth disparities along with interventions that promote social welfare. Command economies are not good at stimulating innovation. Characteristics of Mixed Economy Co-existence of private and public sector: In public sector industries like defence. energy.Instead of leading to efficiency command economies often produce too much of one thing and not enough of another. The term is also used to describe the economies of countries which are referred to as welfare states such as Nordic countries. small scale industries are developed. The government encourages both the sectors to develop simultaneously. Subsequently some mixed economies have expanded in scope to include a role for indicative economic planning and large public enterprise sectors. Economies ranging from the United States to Cuba have been catalogued as mixed economies. The mixed economy is defined as a form of capitalism where most industries are privately owned with only a minority of public utilities and essential services under public ownership. power. Mixed economies are supported by people of various political persuasions. basic industries etc. But unlike a free market economy the government would wield indirect macroeconomic influence over the economy through fiscal and monetary policies designed to counteract economic downturns and capitalism's tendency toward financial crises. public ownership and private ownership or free markets and economic intervention. Instead rationing often becomes necessary. In general the mixed economy is characterised by the private ownership of the means of production the dominance of markets for economic coordination with profit seeking enterprise and the accumulation of capital remaining of fundamental driving force behind economic activity. agriculture.

The subsidies are given to the poor people and also job opportunities are provided for them. cheaply or efficiently. Other steps like concessions. Check on economic inequality: The government take several measures to reduce the gap between rich and poor through progressive tax on income and wealth. Thus economic planning is very essential under this system. It also rewards the most efficient producers with the highest profit ensuring that customers are getting the best value for their rupee. Price mechanism and controlled price: In this system price mechanism and regulated price operate simultaneously. In the consumer goods industry price mechanism is generally followed. Profit motive and social welfare: In the mixed economic system we could find both profit motive like capitalism and social welfare just like in a socialist economy. However all these helps to reduce economic inequality. Disadvantages of a Mixed Economy A mixed economy can also take on all the disadvantages of the other types of economies depending on which characteristics are emphasized. Central planning might do extremely well in mobilizing forces for defence creating government subsidized monopoly or oligarchy system. Control of monopoly power: The government take huge initiatives to control monopoly practices among the private entrepreneurs through effective legislation measures. If it has too much free market it can reward the competitive members of society and leave others without any government support. free medical facilities and free education are also taken to improve the standards of poor people. It also encourages innovation that meets customer needs more creatively. What to produce? This decision matters for both government and the private sector. But in case of a big shortages or during national emergencies prices are controlled and public distribution system has to be effective. This could also put the country into debt slowing down economic growth in the long run.Private property is allowed: In the mixed economy it must be remembered that there must be equal distribution of wealth and income. old age pension. Because of this economic planning is adopted. Economic Planning: In a mixed economy the government is always trying to promote economic development of the country. It must be ensured that the profit and property doesn’t concentrate in a few pockets. Advantages of a Mixed Economy It can efficiently allocate goods and services when it’s needed by allowing prices to measure supply and demand. As well as government can also fake over these services in the public interest. In return they invest this capital in more business like them. The mixed economy automatically allocates capital to the most innovative and efficient producers. As we know more 27 . The government role of protecting the operation of the free markets might not have enough regulation and ultimately taxpayer funded bailouts of businesses that took on too much risk. The government has to decide what goods and services to provide and how much of each goods and services to provide. But the businesses that are already successful can lobby the government for more subsidies and tax breaks.

of one thing generally means less of another (opportunity cost) so some difficult decisions arises at this point. free market economies and centrally planned economies. So how much they use of each factor of production will depend on how much that factor costs and how productive it is. If labour is cheap but nevertheless nearly as productive as more expensive machinery then the firms will choose labour intensive production. In the market sector of the economy this question is therefore decided by relative rewards to factors of production. These incomes can be used to purchase goods and services. How to produce? Firms will decide it on the basis of cost. Economies approach these questions in different ways. 28 . Firms will examine demand and try to produce goods where there is the greatest level of demand. This means that economists consider three different types of economy: mixed economies. So the higher the level of income is the more goods and services can be demanded. Their aims as we have seen is to make a profit in fact the maximum profit possible. For whom to produce? This look at the distribution of the goods and services we produce. If machines are more productive per rupee spent then they may choose capital intensive production. The private sector also has to decide what to produce but this will tend to be decided by the market. Different criteria will be applied in the case of government provided services such as Free State education. Some may choose to have a large government sector (perhaps even total state control) whereas other may choose to leave things almost totally to the private sector and markets. To help them do this they need to produce as efficiently as possible. The more efficiently they produce the more lowly the cost of production is going to be. Factors of production earn incomes. This question is then answered by the market forces of demand and supply.

Government spending can be in the form of transfer payments. excise duty etc. They are revenue tools and spending tools. Capital spending is the public investment in infrastructure such as roads. capital gains tax. Current spending includes expenditure on essential goods and services such as health. Revenue tools Revenue tools refer to the taxes collected by the government in various forms. Indirect taxes are levied on goods and services. schools etc. Direct taxes are levied on the income or wealth of individuals and firms. wealth tax. 29 . hospitals. value added tax. corporate tax. social security tax.2 Assess the impact of fiscal and monetary policy on business organizations and their activities. It also includes interest payments on government debt. Fiscal policy tools have several advantages. This includes sales tax. Tools of Fiscal Policy The government has two primary fiscal tools to influence the economy. The above two also include subsidy or direct provision of merit goods and public goods which would otherwise be underprovided. education. Taxation can be direct or indirect. Spending Tools Spending tools refer to increasing or decreasing government spending or expenditure to influence the economy. estate tax.2. Transfer payments are the redistribution of income from taxpayers to those requiring support for an example unemployment benefits. defence etc. current spending and capital spending. This includes income tax. etc.

Ordinarily a central bank conducts monetary policy by raising or lowering its interest rate target for the interbank interest rate. Most of the government bonds bought and sold through open market operations are short term government bonds bought and sold from the Federal Reserve System member banks and from large financial institutions. Such situations are called a liquidity trap can occur for an example during deflation or when inflation is very low. The government can also discourage use of items such as tobacco and alcohol. If the nominal interest rate is at or near zero the central bank cannot lower it further. Central banks manage systemic risks by maintaining a balance between expansionary economic activity through bank lending and control of inflation through reserve requirements. Banking risk Managing risk in a banking system.Spending tools enable services such as defence to benefit everyone in the country and build infrastructure that propels growth. For money the price is the interest rates charged to borrowers. and stabilize currency. This mainly involves buying government bonds (expanding the money supply) or selling them (contracting the money supply). 30 . Subsidies in research and development also help in future economic growth. There are three primary tools that a monetary policy uses. Setting banking system lending or interest rates in order to manage money demand is a major tool used by central banks. Spending tools also ensure a minimum standard of living for the residents. In the Federal Reserve System these are known as open market operations because the central bank buys and sells government bonds in public markets. When the central bank disburses or collects payment for these bonds it alters the amount of money in the economy while simultaneously affecting the price (and thereby the yield) of short term government bonds. Money demand Demand for money like demand for most things is sensitive to price. Money supply The first tactic manages the money supply. The money lent out by banks increases the money supply and too much money (whether lent or printed) will lead to inflation. Banking systems use fractional reserve banking to encourage the use of money for investment and expanding economic activity. Tools of Monetary Policy Monetary policy is used by the central bank of the country to influence the money supply and interest rates in the economy to stimulate demand. control inflation. Banks must keep banking reserves on hand to handle actual cash needs but they can lend an amount equal to several times their actual reserves. By levying high indirect taxes. The change in the amount of money in the economy in turn affects interbank interest rates. Taxes help government in meeting their fiscal needs.

Government spending contributes to an increase in the nation's growth rate or gross domestic product. government projects and individual purchases. bonds for Federal Reserve 31 . When taxes are increased people have less money to spend on consumer goods. When taxes decrease for individuals the government is hoping to boost consumerism to help businesses and the overall economy. Sales will decline because of unemployment and higher taxes on consumers. Corporations will also experience less government sales for military equipment and other government goods.The Impact of Fiscal and Monetary Policy on Business Organizations Expansionary Fiscal Policy Expansionary fiscal policies are laws passed by the legislative and executive branches to increase government spending or on low taxes often intending to relieve the economy from a recession.S. The Federal Reserve raises the interest rate to control the rate of money being lent and instead sells U. Then the unemployed will seek jobs from businesses. The Federal Reserve can directly decrease interest rates or purchase U. Contracting Fiscal Policy Contracting fiscal policies are enacted by congress and the president to increase government income while the economy is doing well and to prevent an economic bubble by stabilizing the peak of a booming economy. stimulus packages and business grants aids business growth because of a resulting increase in consumer spending and business investment. Legislation passed to fund job growth. bonds from the Treasury to increase the money supply. And when interest rates decrease businesses and individuals can take advantage of cheaper loans and credit rates to help pay for expensive items. As the money supply rises the government accumulates more money without increasing taxes.S. Increasing Monetary Policy Expansionary monetary policy is another government tool to boost the economy through lower interest rates and a larger money supply. Inflation would raise the price of goods but the overall effect would be a boost in consumer activity from business investment. Decreasing Monetary Policy Monetary policy contractions are used to prevent an economic bubble. When government spending is reduced programs and jobs are cut. Less restrictive legislation on business operations contributes to increased cost savings.

2. but the responsibilities varies to different individual organizations. Describe An organization cannot start any organizational operations without implementing organizational responsibilities. Better emphasis should be given to vocational training for students. as the actions of the enterprise will have to face social consequences that’ll effect different groups like stakeholders. Government and business investment will also decline because of this reason. effectively and benefits most people at all times by balancing the approach for a responsible organization. To achieve the organizations stated goals the organization needs to effectively represent rationally ordered instruments.3 Management of responsibilities is a critical issue of a business. To ensure that the organization operates efficiently. This will reduce inflation but will cut spending. Uniformed guidelines generally followed by organizations. No organization wishes to be considered as a socially irresponsible organization but tries to act responsible on social issues. Hospitals and schools exist because healthcare and education are seen as desirable social objectives by the government. Following are the responsibilities of an organization:      Social Responsibilities Environment Responsibilities Ethics and Business Management Responsibilities Public Relations and Corporate Image Social Responsibilities Social responsibility means an obligation that organizations have towards people and environment in which the organization operates. The management is concerned with the way the enterprise will interact with the environment. These responsibilities could differ from each organization to organization due to different types of organization and the manner in which way it functions. As the bank's ability to lend money declines businesses and people will find it harder to get a loan. Social responsibility is expected from all types of different organizations: Local Government: Provides services to the local community by trying to preserve or improve the character of that community by council tax or by business rate payers but at a fair cost. Stakeholders 32 . Universities and Schools: Students who has good abilities and qualifications will prove that their beneficial to the society. People will make less major purchases and spend less using credit cards. Pollution Control: Industrial organizations are developing a commercial process for re-cycling waste materials.notes and decreases the overall money supply.

This argument has different assumptions there are two assumptions for this:   The legal ownership is paramount over all the other interests in a business and there are a few legal or moral rights over the wealth. Provision of a coherent career and training structure so that people can better themselves these are also social responsibilities of an organization towards their employees. Organizations producers two outputs:   Goods and Services. Most of the shares are owned by pension funds because of this most of the beneficiaries may not be wealthy. 33 . Employees value the certainty and regularity of wages thinking that employing organizations honour the contact of employment. infrastructure. forced or voluntary these are ways of recognising manipulative markets who are mostly large corporations. Employees: Employees are internal stakeholders. population and stress) which are inflicted on the wider population. When taking decisions for the beneficial of the company shareholders will not be in favour with the management. Members of the society has a disadvantage when there’s a trickle down when trying to maximise profit. and the business depends on the relationship that the organization and these groups share with each other. shareholders are once who owns the business but an organization also has suppliers. If the cost of labour turnover is higher than the cost of running workplace crèches then if the labour turnover has reduced by a workplace crèches if so then the crèches can be financially justified. Social responsibility towards the organization is constrained by the law thinking that it could benefit in encouraging the employees loyalty and skills. The public pays for roads. Respect for workplace and work practices. The second one is that the businesses relationship with the wider social environment is with the economy. When there’s a need for a compromise or a balance is required each of these groups have their own objectives. The social consequences of its activities (eg: traffic.A stake is what the company does. Shareholders: The management of an organization is considered to have only one responsibility and that is to maximise wealth for the organizations shareholders. maximising wealth increases the state tax revenues that disburse on socially desirable objectives. their members of a wider society which is why the organization exists. as most of the shareholders large institutions like pension funds. managers. shareholders are passive investors. health and safety. the public pay a higher price although the businesses pay taxes they receive government support. Organizations are rarely controlled effectively. Workplace crèches are great assistance for working women but employers will not introduce them without consequent commercial benefits. Social responsibility. handling equipment or hours worked these all implies as social responsibilities. Training employees are beneficial as its level of workforce skills effects the country’s economy productivity. their labour keeps the organizations operational existence and as citizens. Disposal of business assets. The reduction of CFC’s in aerosol cans have led suppliers to introduce rages of goods that are environmental friendly. so their own duties adversely affect the resources on activities that do not make profit. the management has no moral right on this as it effects the reducing of the return available to the shareholders. Management’s job is to maximise wealth as it benefits the society. Customers: The customers pay for the output of goods and services of an organization. workers and customers. There are two reasons in favour of this:   Since the shareholders owns the business the assets of the company are shareholders property. education and health in which the businesses benefits. Public attitude towards some consumer goods sector to get direction from the government and lobby groups that’ll make an environmental impact of an organization activities.

but only the commercial objectives are override if either the inbuilt culture of the organization or the voice of public opinion is strong in the market. as already been mentioned by legislation. d. Modifying management behaviour is social or non-economical these are secondary objectives. By giving charitable donations and artistic sponsorships could be taken as a useful medium of public relations by doing this it’ll make a good impact on the business. A supplier of high technological items will not allow to re-export the goods as the enemies of the nation are where the supplier is based this is called a condition of sale.Suppliers: Social responsibilities of multinational companies are distributed over several countries. There are two more other factors that influence management behaviour other than economic and non-economic objectives: c. noise. Professional Bodies: Controlling is done by the management where members of the professional body have standards of ethics and conduct. Boundaries: these restrict the management’s freedom of taking any action because of government legislations (no pollution. traffic disturbance efforts should be made. Responsibilities: Internal guidance and control mechanism are not a form of obligations that company undertakes but charitable donations and contributions to the life of local communities are responsibilities that they’ll undertake. Environmental Responsibilities Legislation and Regulation The law on environmental protection is mainly covered in the Environmental Protection Act 1997 (EPA) and the Water Resources Act 2007 The EAP act features the concept of integrated pollution control (IPC) the aims of this is to prevent pollution and to ensure that the businesses are conducted with minimum risk to human health and the 34 .) and agreements with trade unions. Neighbours: To prevent environmental pollution including noxious gas. There are different assumptions about ‘society’ and about the relationship between individuals and organizations   The public is a stakeholder in a business and it’ll succeed because of the wider society and by giving charity is one way to encourage the relationship. this is a way of interacting socially among individual objectives of different stakeholders. Objectives and Responsibilities Ansoff (1987) suggested that a company has a number of different objectives:    The total resource conversion process is a primary objective which is financially or economically aimed at the efficiency and the effectiveness of the organization. health and safety at work place etc. Social and ethical objectives are pursue by many organizations to make products that last a certain number of years to prevent health hazards by controlling pollution and to co-operate with the authorities to identify these in the products sold. This is a way of promoting like advertising by doing it this way we could bring consumer awareness to the business. the climate of public opinion by influencing and by trying to pursue commercial organizations to follow particular line or policy. Elected Authorities: Political representatives are external stakeholders they can affect the management in different ways.

Pollution Concerns Pollution concerns are the centre of most who worries about the environment. disposed of or kept in a way where it pollutes the environment or harm human health. Water The Water Resource Act 1991 and the Water Industry Act 1999 were brought in when the UK water industry was privatised and there are number of offences relating to discharges into ‘controlled water’. Genetic resources can be drawn by developing new strains of plants. Another air pollution act is ‘Clean Air Act 1993. new breeds of animals and new types of medicines that depends on the availability of wild species. Developing high-yield disease resistant plants for an example wild species are a critical resource. The chief regulatory bodies under IPC is ‘Her Majesty’s Inspectorate of Pollution (HMIP)’ for air. water and land which is being polluted mostly by industrial processes. biotechnology. The environment can sustain the damages of pollution at some point but it also ensures that the polluter pays for the damages caused. agriculture and food industries are relevant for genetic diversity. but organically produced foods are becoming more profitable and the consumers are willing to pay a premium price. waste management is encouraging firms to:      Prevent or reduce waste production Develop products that do not harm the environment Develop appropriate techniques for disposing of dangerous substances Use recycling methods Use waste as a source of energy Waste mustn’t be treated. plant life. The ‘Environment Agency and Local Authorities’ are in charge of preventing the other sources of pollution. energy availability.  Businesses are under pressure curtail on activities like water table. The success of bottle water in UK is simply a triumph of marketing. quality of drinking water has a massive increase in the size of the bottled water in UK. Genetic Diversity Firms like pharmaceuticals. water. 35 . trees. IPC’s main objectives are to minimise the release of pollution and to neutralise the harmful effects and to develop a pollution control for the environment. the sea and the ocean. Advance technical solutions offering the best practical options to encourage the adoption of environment. Organization are enforced to pay a landfill tax on hazardous waste through a licensing system and to prevent toxic waste from being simply ‘dumped’ on poorer countries there should be a control over the import or export of waste. mineral wealth. animal and marine species may influence business operations through resource depletion.environment. Ecological issues relevant to business as follows: Resource Depletion Availability of raw materials through damage soil.’ which consolidates earlier legislation (introduced after some spectacular London smog’s of the 1950s) Waste Handling and disposal of waste has been incorporated in the English Law now.

   As a result of motor car exhausts and impact of the road vehicles quality of air is a much discussed topic. Waste management has become the new subject to discuss about even in international agreements arrived at governments concerned. The emphasis is given to Improve on infrastructure and land use patterns rather than carbon emission. energy resources and environmental impacts on energy usage. Existence of economic and environmental factors ‘carbon credit’ could be offered to the countries to exchange it with each other and some countries will increase the overall emissions and the system is open for abuse. Certain scarce on potential wasteful or dangerous materials for instance ‘carbon tax’ will discourage the demand for new energy efficient products. waste is also in the centre of attention. development of plants and projects on combined heat and power systems serving neighbourhoods or industrial plants. following are conflicting views and continued debates:    Criteria for distribution of profit Relative pay and rewards for employees. With average world temperature increasing and sea levels rising this could cause disastrous effects on agriculture and flooding of low-lying areas. This may be an issue of bearing upon distribution policies. Energy Resources Concerned over climatic changes. for an example dumping waste on marine life and on the beaches in many different countries are being discussed to bring new waste management regulations. ethical principles are not enforced by the law but law can incorporate moral judgment. Waste Whether it’s nuclear waste from power stations or industrial or domestic waste in landfill sites. Ethics and Business Ethics is a code of moral principles that people follow in respect for what is right or wrong. To remedy these problems. Climate Change Effects of excess carbon dioxide in the atmosphere is a debatable term when unnatural weather is produced. Noise pollution is also an important fact this has an impact on the operations of all forms of businesses. Usage of energy has been controlled less of potential than seems possible for an example coal gives only up to 40% of its potential into electricity. The national governments target for legislation has become handling of waste. Modifications needed to production processes and consumption patterns which are been identified as contributory factors. directors and junior staff Decisions about priorities for an example in respect of public expenditure 36 . the polluter pays principle was adopted by the OECD (Organization for Economic Co-operation and Development) in the early 1970s and it’s been broadly accepted. The pollution of land through landfill policies and the long-term damages done by the industries to the land it occupies are required to change some of the policies during the next few years. In the counties of the developed world energy saving programmes are underway. Business Ethics Ethical codes are rooted in a wider value system to know what is right or wrong. Kyoto Treaty of 1997 was an attempt to control pollution on the environment by emission of ‘Greenhouse gases’ particularly carbon dioxide which have been linked to climate change.

Law education is given with compliance system. The managers have a responsibility to ensure that the public and company employees are protected from the dangerous areas like products and production places.  Loan chargers eg. company objectives or a staff handbook. detected and punished in organizations and the legal consequences of unethical behaviour define the idea of social responsibility that affects the business this also avoids problems like bribery. control and penalties. Managers and the lawyers are the staff. Payment of interest to lenders of money The sale of harmful products eg. preserve and enhance the value of enterprises for all who are touched by it including the general public. The staff are lawyers and the standard set is also the law standard. Values. lawyers and HR specialists etc. and even professional values like code of ethics and medical ethics etc. Some of the ethical problems that managers face during practice are very numerous. provide guidance and consultation. People have solitary self-interested behaviour. guideline. Integrity based approach: Promoting ethical behaviour in an organization makes assumptions which people go about their work. audits. personal values like religious and non-religious beliefs. Some of the approaches to ethics are as follows. handle reports of misconduct. The sale of defective products without appropriate warnings in some countries and companies trading internationally discover infringers between human rights and legal jurisdictions are some of the differences between legality and ethicality. 37 . Activities are develop the standards. Ethical Problems Facing Managers Modern ethical standards are imposed as a duty to guard. There are also ethical issues in corporate governance and finance places. Ethical problems also are concerned about the payments by companies to officials particularly officials in foreign countries who have the power to help or hinder the payers operations. Some of the approaches to ethics are as follows. operating principles. Code of ethics the term is interpreted in many different ways it’s also known as code of conduct. identify and resolve problems and oversee compliances are some of the activities that the employees will need to develop in them. People are socialised with values in their behaviour. Following are some of the area of distinctions: Extortion: Suitable payments should be made in case some countries officials intend to threat companies to complete the closure of local operations. political opinions and personality etc. compliance systems are been educated. Grease Money: Deliberate stalling by official’s lead multinational companies unable to obtain services which they are legally entitled for so by doing cash payments to the right people may allow to oil the machinery of bureaucracy. lawyers are the originators. Leadership and organization systematic methods are included for education. are the originators. oversee compliance. Ethical decisions are important as penalties in organizations now. Integrated values into company systems. A compliance based approach: The letter of law and that violations are prevented. control and penalties reduce employee discretion. train and communicate. The Consumer Protection Act 2007 and EU legislation generally is beginning to ensure that ethical standards are similarly enforced in the UK. investigate. Methods like education. law. The company values the standards of aspirations (including law). ethos is to choose ethical standards to enable the legal and responsible conduct of objectives and the management. principles of conduct. ethos is knuckled under to external standards and the objective is to keep it to the law. Dangerous working conditions or inadequate safety standards in products by cutting down the cost as a result of increasing profits. Product liability litigation is a legal threat that it may be more effective deterrent than general ethical standards. Bribery: Payments taken for services which companies are not legally entitled for as services there need to be a certain distinction to be drawn. Tobacco Ethical dimension on how the organization and the people working in that organization brings their own values. enforce. audits.

Measures should include:     Counselling individuals by giving them suggestions on what they might try to do. Management Responsibilities The management is not only responsible for the owners of an organization but also to the following stakeholders as well:      Employees Customers Suppliers Competitors The Local Community  The General Public (the government) Responsibilities to Employees Good pay and working conditions and good training and development schemes should be converted into practice and this should extend into:   Recruitment Policy Redundancy and Retirement Policies Recruitment: When recruiting new individuals to the organization this needs to be done carefully because if the new recruitment is bad at the job and doesn’t perform well then the company will have to sack them. Redundancies: This is a difficult problem that organizations face even though the organization shows an ethical responsibility towards their employees in case the business has to close down and if the employees lose their jobs at times like this the organization should try to redeploy many staff as possible without making them redundant and necessary training should be provided to the staff so that they could improve in their skills and use them in a new job. Organizations should take steps to help get jobs for the staff who are redundant. Provide training or fund for training so that the employees could use other skills in another organizations or industries. Responsibilities to Customers 38 . Because of undesirable political policies managers are concerned about organizational activities which will lead to this. There is a distinction between competing aggressively and competing unethically with other companies. Arrange job fairs for employers to come display the job offers they have and discuss job opportunities with redundant employees. Retirement: The staff who are retiring should get five years of service from the organization. The organization should have good pension schemes. And some point mangers may feel liberty in adopting such local customs. Some organizations have training courses and discussions groups for employees who are going to retire by providing these facilities it could help them plan their future time constructively. Careful recruitment methods should keep demoralising incidents like dismissals as its inevitable in any large organization.Gifts: Giving gifts are an essential part in some cultures as it indicates a civilised way of negotiating in some circumstances but for the westernised people this might look like an ethically dubious way. Providing good redundancy payment which will help employees to set up a business for them or which will help them survive until they find a new job for themselves.

training. All suppliers should be treated fairly by giving some potential new suppliers a chance to gain some business and by maintaining long term relationships that’ve been built up over the years with some suppliers and suppliers who are established for a long time should not be replaced unless there’s a commercial advantage to the organization. There are others involved including their team members but they take ultimate responsibilities for final decisions. Responsibilities towards the Wider Community Organizations are a part of the community that serves and it should be responsible for upholding the social and ethical values of the community.Ethical responsibilities towards customers are by providing a product or a service with desired product quality that a customer expects and dealing fairly and honestly with the customers. There is a law surrounding the conduct of fair trading. 39 . Responsibilities of Suppliers Organizations responsibility towards its suppliers are expressed in terms of trading relationships. developing. An interdependent team is usually more productive than a group of individuals working independently. By contributing towards the wellbeing of the community for an example by sponsoring local events and charities or by providing facilities to the community to use (eg. providing feedback and recognition. Team development: In addition to individual employee management and development a manager is responsible for the development of a high performing team. screening. Responsibilities regarding competitor are solely directed by ethics. Responsibilities to competitors Ethical responsibilities should exist towards competitors. coaching. monopolies. coaching. Depending on the number of direct reports a manager has this can take up the majority of a manager’s week. mission. mergers. measuring and monitoring employees’ work. and selection or they overly rely on HR or recruiters instead of seeing selection as a critical part of his/her job. goals and objectives in other words strategy. The organization size would give a considerable power to the buyer and one ethical guideline would be that the organization should not use its power unscrupulously for an example by forcing the supplier to reduce the prices and threatening to withdraw the business Another ethical guideline is to not delay the payments to the supplier beyond the agreed credit period as the supplier rely on getting prompt payment accordance to the terms negotiated with the customer. and doing performance reviews. Strategic managers spend a lot of time thinking about mission and direction always on the lookout for the need to change priorities or reinvent. Setting overall direction: A manager sets the long and short term direction of the team or organization. anticompetitive practices. All information obtaining from the supplier and potential suppliers should be kept confidential. Kiddies playground). It includes clarifying and setting expectations and goals. Performance management: Is a broad category and covers the people management aspect of a manager’s job. abuses of a dominant market position and restrictive trade practices. This includes the vision. Managers often take short-cuts when it comes to sourcing. And also by responding constructively to complaints from local residents or politicians (eg. addressing performance problems. Organizations delivery vehicles causing local traffic) Responsibilities of Managers Hire great people: Who are talented and passionate about their jobs.

Self-development: Managers are not just responsible for the development of their employees and teams they are responsible for their own development as a manager as well. Employees and partners are the greatest assets that make a business profitable. objectives and expectations of the organization. contributing to decision making and problem solving and participating in organizational projects. says that “team number one” should be your manager’s team not your own. Responsibilities of Employee Technical Expert: Employees and business partners may have the role of technical expert. seeking mentors. developmental assignments.Being an important and supportive team member: Patrick Lencioini author of the bestselling book “The Five Dysfunctions of a Team. However managers should be very careful to make sure that they are really doing work and that they do work what they are really good at or don’t trust their team to do. In their various roles employees have the responsibility to manage those processes that they are assigned for. When employees and partners neglect their roles and responsibility then the profitability of a business is substantially threatened. The higher the level the fewer there are but even CEOs have to do things that just cannot be delegated. goals. By doing so they are role modelling continuous improvement. They must be able to perform the work properly. Employees and business partners fulfil this responsibility by attending meetings. This means that they have the responsibility of growing the organization especially in terms of profitability. Managing: Employees and business partners in their different levels are responsible for managing one or more business aspects. In the role of technical expert both employees and business partners incur several responsibilities such as ensuring that they perform according to mission. Manage resources: Managers have to make sure the team has the resources they need to do them work while at the same time making sure that a team does not overspend or waste resources. That includes taking on stress. He says “We all know that if there is any daylight between executive team members. Additionally through task delegation business partners and employees are able to accomplish more tasks effectively and within a shorter period of time. Improve processes and quality: While individual should take responsibility for the quality of their own work managers are usually in the best position to see the overall workflow and make adjustments and improvements. As such they have the responsibility of contributing to the success of the team. The main objective or bottom line of business is to make profits. Communicate information: They make sure information is flowing from above. participating in management training. asking for feedback and reading about management and leadership.” Doing unique work that no one else could or should do: Every manager no matter what level has their own set of individual contributor responsibilities. For an example employees working in the financial department are responsible for managing the financials of the company. sideways and upwards. They are never the bottleneck in the information highway. it ultimately results in unwinnable battles that those lower in the organization are left to fight. Team Playing: Employees and business partners work in a team. This means that they play the role of individuals with all the requisite skills and competencies to undertake their various tasks. Development: Both employees and business partners have the role of business developers. 40 . Business partners are responsible for managing the decision making processes and overseeing business operations for the best interest of the business.

Unnecessarily you will lose your respect in front of them. They might not invest in that particular product but would definitely come back to you in near future just because you were honest and guided them correctly. Avoid making fake promises and commitments which you yourself know are difficult to fulfil. Understand that a customer buys your products or services only when he/she trusts your brand and most importantly believes in you. After sales service is essential and ensures long term growth and profits for the organization. It is one of the worst things you can do to your customers. If the customer is not satisfied with your product it is your responsibility to replace it or provide a solution. Do not run away with their money. He would neither come to you again nor recommend your brand to his friends or acquaintances. If the customer wants to meet you at 5 in the evening make sure you are there on time. Your loss is someone else’s gain. It is pointless to badmouth your competitors. In today’s world where information is just a click away everyone does his/her thorough research before purchasing something. It is the responsibility of the organization to give correct suggestions and feedbacks to customers. You need to build a strong relationship with your customers for them not only to remain as your loyal clients but also bring more people along with them. Customer feedbacks are important and help you understand the satisfaction level of your esteemed customers and how you can make your product better in due course of time. Do not forget that there are several options available in the market. There are organizations that do not bother to touch base with their customers the whole month but are active only when they fall short of their targets and they have an appraisal in the coming month. If you can’t deliver something please mention it clearly. Do not decide the time and venue as per your availability and comfort. Make sure their money is invested in a right way and also multiples at a rate promised to them. Find out as to why they need a particular product and how your product would benefit them. It is foolish to cook false stories. What is the need of selling a mobile phone with just one day battery backup when the customer has specifically asked you for a handset with at least 3 days backup? Never lie to your customers. Understand the needs and requirements of your clients. It is your responsibility to take care of their hard earned money. Do not just think of your own selfish targets and incentives.Responsibilities of Customers Treat your customers as kings and do not think of them only when you have a pressure to meet your targets within the stipulated time frame. make sure you are in touch with your customers after the deal as well if you wish to survive the cut throat competition. Respect your customer’s time. Neither reach too early nor too late. Businesses dealing with customer’s money need to be extra careful with clients. Suggest them the right schemes and right plans as per their need. Organizations tend to forget their customers once the deal is done. By doing this you will definitely meet your targets once or twice but trust me not for a very long time. The moment the customer knows that you have cheated on him/her your game is over. 41 . Do not keep your customers waiting. Do not ignore their calls once you have sold your product.

The single firm will not increase its price independently given that it will not sell any goods at all. There are four basic market structures: perfect competition. Each unit of input. Given that producers and consumers have perfect knowledge it is assumed that they make rational decisions to maximise their self-interest consumers look to maximise their utility and producers look to maximise their profits. identical units of output that are not branded. monopoly. The single firm is said to be a price taker from the whole industry. Perfect competition A perfectly competitive market is a hypothetical market where competition is at its greatest possible level. Knowledge is freely available to all participants which means that risk taking is minimal and the role of the entrepreneur is limited.1 Explain how different market structures determine the pricing and output decisions of businesses. Firms produce homogeneous.LO3 3. Perfectly competitive markets exhibit the following characteristics: There is perfect knowledge with no information failure or time lags in the flow of information. monopolistic competition and oligopoly. Neo classical economists argued that perfect competition would produce the best possible outcomes for consumers and society. 42 . There are many firms in the market too many to measure. Neither will the rational producer lower price below the market price given that it can sell all it produces at the market price. such as units of labour are also homogeneous. No single firm can influence the market price or market conditions. There are no barriers to entry into or exit out of the market. This is a result of having no barriers to entry.

Firms can only make normal profits in the long run although they can make abnormal (super-normal) profits in the short run. The firm as price taker The single firm takes its price from the industry and is consequently referred to as a price taker. 43 . Each single firm must charge this price and cannot diverge from it. The industry is composed of all firms in the industry and the market price is where market demand is equal to market supply. Equilibrium in perfect competition In the short run Under perfect competition firms can make super-normal profits or losses. There are assumed to be no externalities that is no external costs or benefits to third parties not involved in the transaction.There is no need for government regulation except to make markets more competitive.

The super normal profit derived by the firm in the short run acts as an incentive for new firms to enter the market which increases industry supply and market price falls for all firms until only normal profit is made 44 . If firms are making losses they will leave the market as there are no exit barriers and this will shift the industry supply to the left which raises price and enables those left in the market to derive normal profits. The effect of this entry into the industry is to shift the industry supply curve to the right. which drives down price until the point where all super normal profits are exhausted.In the long run In the long run firms are attracted into the industry if the incumbent firms are making supernormal profits. This is because there are no barriers to entry and because there is perfect knowledge.

Evaluation of monopolies The advantages of monopolies They can benefit from economies of scale and may be ‘natural’ monopolies so it may be argued that it is best for them to remain monopolies to avoid the wasteful duplication of infrastructure that would happen if new firms were encouraged to build their own infrastructure. The railway network of any country is an example of a monopoly. Domestic monopolies can become dominant in their own territory and then penetrate overseas markets earning a country valuable export revenues. This is certainly the case with Microsoft. The cost of investment copyright or holds over resources are some examples of high entry barrier. When it makes natural sense to have one firm produce a product it is called a natural monopoly. The entry barrier is very high to this kind of market. Key characteristics Monopolies can maintain super-normal profits in the long run. Given that price (AR) is above ATC at Q. Public utilities electronic defence equipment are government sponsored natural monopolies. As with all firms profits are maximised when MC = MR. supernormal profits are possible (area PABC). 45 . In general the level of profit depends upon the degree of competition in the market which for a pure monopoly is zero.Monopoly Market In such a market there is usually just one seller. At profit maximisation MC = MR and output is Q and price P. According to Austrian economist Joseph Schumpeter inefficient firms including monopolies would eventually be replaced by more efficient and effective firms through a process called creative destruction. With no close substitutes the monopolist can derive super-normal profits area PABC. A monopolist with no substitutes would be able to derive the greatest monopoly power.

If some of these profits are invested in new technology costs are reduced via process innovation. The disadvantages of monopoly to the consumer Monopolies can be criticised because of their potential negative effects on the consumer including: Restricting output onto the market. A. Thus. Innovation is more likely with large enterprises and this innovation can lead to lower costs than in competitive markets. 46 . Charging a higher price than in a more competitive market. the overall (net) loss of economic welfare is area A B C. A firm needs a dominant position to bear the risks associated with innovation. C. Firms need to be able to protect their intellectual property by establishing barriers to entry or else there will be a free rider problem. Reducing consumer surplus and economic welfare. is E. F. and B. This is because: High profit levels boost investment in R&D. The area of economic welfare under perfect competition is E. The loss of consumer surplus if the market is taken over by a monopoly is P P1 A B. Because of the lack of competition the monopolist can charge a higher price (P1) than in a more competitive market (at P). The area of deadweight loss for a monopolist can also be shown in a more simple form comparing perfect competition with monopoly. P1. Higher prices The traditional view of monopoly stresses the costs to society associated with higher prices.It has been consistently argued by some economists that monopoly power is required to generate dynamic efficiency that is technological progressiveness. Why spend large sums on R&D if ideas or designs are instantly copied by rivals who have not allocated funds to R&D? Monopolies are protected from competition by barriers to entry and this will generate high levels of supernormal profits. The new area of producer surplus at the higher price P1. The result is lower price and higher output in the long run. Reducing consumer sovereignty. Restricting choice for consumers. This makes the monopolist’s supply curve to the right of the industry supply curve.

But they cannot fully appreciate the restaurant or the meal until after they have dined. In the case of restaurants each one offers something different and possesses an element of uniqueness but all are essentially competing for the same customers. There is freedom to enter or leave the market as there are no major barriers to entry or exit. Characteristics Each firm makes independent decisions about price and output based on its product its market and its costs of production. The entrepreneur has a more significant role than in firms that are perfectly competitive because of the increased risks associated with decision making. For an example diners can review all the menus available from restaurants in a town before they make their choice. Knowledge is widely spread between participants but it is unlikely to be perfect. There are four main types of differentiation: 47 . Once inside the restaurant they can view the menu again before ordering.Monopolistic Competition Many small businesses operate under conditions of monopolistic competition including independently owned and operated high-street stores and restaurants. A central feature of monopolistic competition is that products are differentiated.

Human capital differentiation where the firm creates differences through the skill of its employees the level of training received distinctive uniforms etc. posters. The firm can set its own price and does not have to ‘take' it from the industry as a whole though the industry price may be a guideline or becomes a constraint.Physical product differentiation. Monopolistic competition in the short run At profit maximisation. For an example breakfast cereals can easily be differentiated through packaging. good knowledge and an opportunity to differentiate. Because each firm makes a unique product it can charge a higher or lower price than its rivals. performance and features to make their products different. design. 48 . There are usually a large numbers of independent firms competing in the market. Monopolistically competitive firms are assumed to be profit maximises because firms tend to be small with entrepreneurs actively involved in managing the business. colour. Differentiation through distribution including distribution via mail order or through internet shopping such as ebay. Given that price (AR) is above ATC at Q. local cinema. Firms operating under monopolistic competition usually have to engage in advertising. Common methods of advertising for these firms are through local press and radio. where firms use size. For an example consumer electronics can easily be physically differentiated. and output is Q and price P.com which differentiates itself from traditional bookstores by selling online. shape. Firms are price makers and are faced with a downward sloping demand curve. supernormal profits are possible (area PABC). because of low barriers to entry. This also means that the demand curve will slope downwards. but in the long run new firms are attracted into the industry. leaflets and special promotions. Firms are often in fierce competition with other (local) firms offering a similar product or service and may need to advertise on a local basis to let customers know their differences. Equilibrium under monopolistic competition In the short run supernormal profits are possible. MC = MR. Marketing differentiation where firms try to differentiate their product by distinctive packaging and other promotional techniques.

New entrants continue until only normal profit is available.As new firms enter the market. all super-normal profits are eroded away. Monopolistic competition in the long run Super-normal profits attract in new entrants. At this point. driving down price. firms have reached their long run equilibrium. 49 . Eventually. demand for the existing firm’s products becomes more elastic and the demand curve shifts to the left. which shifts the demand curve for existing firm to the left.

The cement industry or airline manufacturing industry are good examples. In both these industries the economies of scale are very high making entry barriers in these segments high. the firm benefits most when it is in its short run and will try to stay in the short run by innovating.Clearly. and further product differentiation. Examples of monopolistic competition Examples of monopolistic competition can be found in every high street. The different firms differentiate on the basis of 50 . such as hairdressing Oligopoly Market There are a few players who need to keep an eye on each other’s strategy. such as:     The restaurant business Hotels and pubs General specialist retailing Consumer services. Monopolistically competitive firms are most common in industries where differentiation is possible.

it must take into account the possibility that close rivals. they need to plan. they must anticipate the likely response of a rival to any given change in their price. In other words. such as Shell and BP. In this market structure demand elasticity is more than that of a monopoly. Sometimes it pays to go first because a firm can generate head-start profits. or they can exploit natural barriers that exist. Key characteristics The main characteristics of firms operating in a market with few close rivals include: Interdependence Firms that are interdependent cannot act independently of each other. Because firms cannot act independently. Strategy Strategy is extremely important to firms that are interdependent. and work out a range of possible options based on how they think rivals might react.some features. Oligopoly have to make critical strategic decisions. Whether to be the first firm to implement a new strategy. or keep price constant. their offerings being good substitutes to each other. A firm operating in a market with just a few competitors must take the potential reaction of its closest rivals into account when making its own decisions. such as:    Whether to compete with rivals. The advantages of ‘going first’ or ‘going second’ are respectively called 1st and 2nd-mover advantage. An understanding of game theory and the Prisoner’s Dilemma helps appreciate the concept of interdependence. may reduce their price in retaliation. or collude with them. or whether to wait and see what rivals do. Barriers to entry Oligopolies and monopolies frequently maintain their position of dominance in a market might because it is too costly or difficult for potential rivals to enter the market. or their non-price activity. and then try to improve on them or find ways to undermine them. These hurdles are called barriers to entry and the incumbent can erect them deliberately. For example. Kinked demand curve 51 . 2nd mover advantage occurs when it pays to wait and see what new strategies are launched by rivals. Whether to raise or lower price. if a petrol retailer like Texaco wishes to increase its market share by reducing price.

and output Q. At price P. The disadvantages of oligopolies 52 . will be also be different.The reaction of rivals to a price change depends on whether price is raised or lowered. given the high price elasticity of demand for any price rise. price tends to stick close to its original. and hence the gradient of the demand curve. The demand curve will be kinked. at the current price. revenue will be maximised. The elasticity of demand. Even when there is a large rise in marginal cost.

Price stability may bring advantages to consumers and the macro-economy because it helps consumers plan ahead and stabilises their expenditure. is less than the productively efficient output. which can lead to decision making bias and irrational behaviour. The advantages of oligopolies Oligopolies may adopt a highly competitive strategy. Oligopoly may be allocative and productively inefficient. price is above MC. making the market uncompetitive. including making purchases which add no utility or even harm the individual consumer. Firms can be prevented from entering a market because of deliberate barriers to entry. Oligopolies tend to be both allocative and productively inefficient. and output. There is a potential loss of economic welfare. At profit maximising equilibrium. at point A. oligopoly may be free to engage in the manipulation of consumer decision making.such as financial decisions about mortgages . in which case the consumer may gain. P. Given the lack of competition. such as lower prices. By making decisions more complex . Q1.individual consumers fall back on heuristics and rule of thumb processes. The super-normal profits they generate may be used to innovate. Oligopoly may be dynamically efficient in terms of innovation and new product and process development. their behaviour may be highly competitive. in which case they can generate similar benefits to more competitive market structures. Cartel-like behaviour reduces competition and can lead to higher prices and reduced output.High concentration reduces consumer choice. which may help stabilise the trade cycle. Even though there are a few firms. 53 . Q.

The competitive environment of an industry has a strong influence on the performance of businesses within that industry. they increase competition. which can hurt a business's bottom line. Or. Harvard Business School professor. It was developed in 1979 by Michael Porter. The idea is to look at each of these factors and determine the degree to which they increase competition in the industry. Porter’s five forces of competition have become a central concept to business theory. 54 . If a company uses Porter’s 5 forces industry analysis and concludes that the competitive structure of the industry is such that there is an opportunity for high profits. the threat of new entrants. Porter’s five forces defined whether an industry is attractive or unattractive from the perspective of a company competing in that industry. Michael Porter’s five competitive forces can be used to examine and analyse the competitive structure of an industry by looking at 5 forces of competition that influence and shape profit potential. Porter’s 5 forces industry analysis does more than look at a company’s direct competitors. if the company is already competing in that industry or market. if the company is already competing in that industry or market. the bargaining power of suppliers. Porter’s Five Forces Porter’s 5 forces framework is used for strategic industry analysis. If a company uses the five forces Porter created and concludes that the competitive forces in the industry are too strong or unfavourable. Porter’s five forces definition can be utilized by any business and can be applied to any industry. which is determined by the number of existing competitors and what each is capable of doing. Or. Porter’s 5 forces of competition provide an excellent method to consider an industry before entrance. which is the percentage of market share owned by the four largest firms in an industry. if the forces are weak they decrease competition. it can use Porter’s 5 forces model to find the best possible strategic placement in it. Michael Porter’s 5 competitive forces:      Threat of new entrants Bargaining power of suppliers Bargaining power of buyers Threat of substitute products Intensity of rivalry among competitors Competitive rivalry This force examines how intense the competition currently is in the marketplace. An unattractive industry is one which does not offer the potential for profitability. and the threat of substitute products. it looks at multiple aspects of the industry’s competitive structure and economic environment. Rivalry competition is high when there are just a few businesses equally selling a product or service. When rivalry competition is high. it can use the competitive forces Porter created to determine its optimal position within the marketplace.2 Illustrate the way in which market forces shape organizational responses using a range of examples. when the industry is growing and when consumers can easily switch to a competitors offering for little cost. An attractive industry is one which offers the potential for profitability.3. that company may choose not to enter that industry or market. the company can elect to enter that industry or market. advertising and price wars can ensue. If the forces are strong. including the bargaining power of buyers. Rivalry is quantitatively measured by the Concentration Ratio (CR).

Sources of supplier power also include the switching costs of firms in the industry. and the supply purchase cost relative to substitutes. how their prices and quality compare to the business being examined and how much of a profit those competitors are earning. but lots of sellers. as well as a buyer's inclination to change. the more power they have. The easier it is for a competitor to join the marketplace. Barriers to entry include absolute cost advantages. the greater the risk of a business's market share being depleted. Businesses are in a better position when there are a multitude of suppliers. Buying power is low when consumers purchase products in small amounts and the seller's product is very different from any of its competitors. access to inputs. In addition. it looks at the number of suppliers available: The fewer there are. Threat of new entrants This force examines how easy or difficult it is for competitors to join the marketplace in the industry being examined. the presence of available substitutes. both immediate and long-term. would lower a business's profitability. in turn. Consumers have power when there aren't many of them.Bargaining power of suppliers This force analyses how much power a business's supplier has and how much control it has over the potential to raise its prices. Bargaining power of customers This force looks at the power of the consumer to affect pricing and quality. which. 55 . which would determine if they have the ability to lower their costs even more. as well as when it is easy to switch from one business's products or services to another. Threat of substitute products or services This force studies how easy it is for consumers to switch from a business's product or service to that of a competitor. economies of scale and well-recognized brands. The threat of substitutes are informed by switching costs. It looks at how many competitors there are.

For example. weather and climatic condition. Economic environment is not same for all countries. Legal environment refers to set of laws. In Indian culture beef is prohibited for Hindus. foreign investment policy and export-import policy are not same for those two countries which have great impact on the organizational behaviour. On the other hand non-economic environment consists of natural.3 Judge how the business and cultural environments shape the behaviour of a selected organisation. technological. Their operation largely depends on the business and cultural environment of the countries where they operate. economic policies and economic condition. All these aspects have a bearing on the strategies adopted by the business firms. monetary policy. techniques and approaches adopted for production of goods and services and its distribution. Political environment includes the political system.3. values. legal. These factors include the availability of natural resources. Business and cultural environment has great impact on organizational behaviour. The stability of the government also influences business and related activities to a great extent. social environment. 56 . Demographic environment refers to the size. etc. traditions and customs. the government policies and attitude towards the business community and the unionism. The economic environment includes economic system. topographical factors. McDonald’s does not sell beef in Hindu communities and pork in Muslim communities. poverty. distribution and growth rate of population. beliefs. Product prices are higher in UK than India. Technological environment include the methods. literacy. Economic policies like industrial policy. which influence the business organisations and their operations. so most of the people don’t eat beef. Social environment of business includes social factors like life expectancy rate. and work within the framework of the law. regulations. demographic. political. McDonald’s has to obey. location aspect. The natural environment includes geographical and ecological factors that influence the organizational behaviour. per capita income of UK and India are not same. UK has higher per capita income than India. density. There are two kinds of business environment: economic environment and non-economic environment. All these factors have a direct bearing on the demand for foods of McDonald’s. McDonald’s is operating more than 119 countries in the world. fiscal policy. The varying technological environments of different countries affect the designing of products.

active ware (sports ware) and fabrics. International trade is more feasible in the global market as people now are well aware of what they want and what the products available are and which product is the best for them to choose in the market. intimate ware. If a country cannot produce a product efficiently that country can trade it with another country this is called specialization in international trading. water. International Trade and Multinational Companies: There are more multi-national companies now than two decades ago this is another reason of increase in international trading and multi-national companies generate more revenue not in just one country but more than one so as a result it adds up to the international trade of a country. tourism. Macroeconomic measurement quantities (GDP and NDP etc. spare parts. Exports and imports are accounted in a country’s current account in the balance of payment (BOP). jewellery. consultancy. Wealthy countries are allowed to use their resources like labour technology and capital etc. If we decreased the cost of labour then we need to pay a lesser price for the shoes (Sneakers) we want to purchase. wine. Almost every kind of product can be found in the international market food. This sort of trading arises the world economy and where the prices. MAS is one of the biggest companies that produce apparel manufacturing like swim ware. Sri Lanka produces Tea and Rice but in the 57 . clothes. rubber. Because of the technological (internet and social media) advances increase in international trading and increase in global awareness can be attributed. We can find all sorts of services also been traded like. Increase of attributes can be an advent of globalization and industrialization. To increase trading between two countries the main reason for this is the political relationship between the two countries. Speedo Fast Skin FS-Pro swimsuit which was first worn at the 2004 Olympics and the Nike Revolutionary Support Bra the highest selling sports bra in the USA worn by international tennis players and athletes. banking. capital and technology etc. There are some countries that produce the same product and one country might produce this product more efficiently than the other country and sell it at a cheaper rate.) of a country forms a large part in the international trade. supply and demand affects and are affected by the global events. efficiently when globally trading. Political changes in a country: If a political change happens in Sri Lanka for an example it’ll increase the cost of labour therefore increasing the manufacturing cost of an American sneaker company which results to increase the price of basketball shoes that needs to be purchased from the local mall. For an example if we take tea and rice both this products are produce in Sri Lanka and India. International trading and Consumers: During the last couple of years international trading has substantially increased. rice. tea.LO4 4. Because lots of countries are endowed with many different assets and natural resources like land. Some of the multinational companies in Sri Lanka like MAS and Brandix are huge traders in the international market. labour. shoes. Global Trading and using Country Resources: If we sell a product in the global market it is an export and if we buy a product from the global market it is an import. stocks and currencies. International trading gives the consumers and the countries an opportunity to expose themselves to the available goods and services not only in their country but globally.1 Discuss the significance of international trade to a country giving special emphasis to Sri Lankan business organizations International trade is the exchange of goods and services that happens across international borders. transportation and education (Foreign universities affiliating with local private universities). MAS has also produce clothing for biggest brands like Victoria Secret one of the biggest and fast selling lingerie brands in USA. MAS has also design the Sri Lanka national cricket team jersey as well. oil.

mineral products. 58 . Bangladesh and Pakistan etc. rubies.49 carats. Positive impact of International Trading: Sri Lanka is one of the largest county’s that trade gems in the international market. Sri Lanka’s import commodities are textile fabric. This stone was found in the city called Rathnapura which is also known as the ‘City of Gems’ and this stone was named as ‘The Star of Adam’. Increase of Revenue: International trade helps increase revenues of a company and if there was no international trade company revenues will be limited only to its country’s domestic revenues. Importing garments from the international market was cheaper as there were more resources available to produce the garments and the counties we bought garments from were more efficient in producing them than us. coconut products. food and beverage.international market Sri Lankan tea is more expensive than the tea produce in India but Sri Lanka produce tea more efficiently than India. International and Domestic Trading: The international trade is more expensive than domestic trading because of imposing external tariffs and delays in transportation from one country to another. Trading gems stones internationally Sri Lanka pricing for the gems stones might be at a higher price rate but the efficiency and the quality is no like other.) and machinery and transportation. If you take Sri Lanka for an example Sri Lanka exports and imports a lot of products in the international market. There’s no other country that produces blue sapphires like in Sri Lanka as it comes in different sizes and in different qualities one of the recent findings of a blue sapphire was finding the world’s largest blue star sapphire which was valued in a estimated rate of US$ 100 million and the weight of this stone was 1404. medicines (tablets. Other countries like India also trade gem stones their prices are low and so are the efficiency of producing the product is low so most countries buy gem stones from Sri Lanka. petroleum. but because of labour costs and less capital the production of garments reduced drastically. tea and spices. which led most of the garment factories to close down their business. These are a few differences in international trading and domestic trading. diamonds. transferring labour and capital or goods and services are easily transferred domestically than internationally. in India rice is produce more efficiently and its cheaper in price. blue sapphire. emeralds. But if we had increased our capital and resources available for the garment factories and reduce the labour cost we wouldn’t have needed to close down the garment factories. rubber manufactures and fish. cough syrup etc. when trading countries want not only cheaper but quality products so counties may buy Sri Lanka tea for a higher price as Sri Lanka produce the best quality tea more efficiently and buy rice from India as its more cheaper and it’s been produce in India more efficiently. Sri Lanka’s export commodities are textiles and apparel. Country’s with no international trading will have to produce its own goods and services to its country which would be impossible because every country has different resources available and you cannot find all resources in just one country for an example Saudi Arabia has the biggest market for oil as that’s the main resource that country has so in order to fulfil its country people’s needs and wants they have to import almost every other goods and services in exchange of oil. So as a result of this international trading is confined in trading goods and services as it’s against transferable factors of production (labour and capital). Labour and capital which is required to produce goods and services are not easily transferable across international borders as it is domestically. Negative impact of International Trading: Sri Lanka used to be one of the largest countries that use to export garments. Sri Lanka’s biggest selling markets in gems stone is Blue Sapphire. The Sri Lankan government then started importing garments from counties like India.

the country’s exports were at $7 billion as compared to $8. giving special emphasis to Sri Lankan context. 4. the two-way trade between these two countries amounted to $329 million. Sri Lanka also leverages on “GSP+” trade preferences of the European Union.08 billion 2008. Sri Lanka shares a very healthy trade relations with India after the two countries signed a free trade agreement (FTA). 59 .6 billion by 2006. Australia also has strong trade ties with Sri Lanka.International Trading and Sri Lanka as one of the Traders: Sri Lanka was one of the contracting party to the General Agreement on Tariffs and Trade (GATT) and also became one of the founding members of World Trade Organization (WTO) for decades Sri Lanka assumed a proactive role as a driving force to trigger trade liberalization in the region. presentation skills and also the ability to handle a situation as it arises etc. Sri Lanka is also a member of South Asian Free Trade Area (SAFTA). Foreign universities affiliating with private local universities gives a good scope for international trading in Sri Lanka as an educational service and this gives more space for our country to gain more revenue to the Sri Lankan accounting system. International Trade and Education as a Service: Sri Lanka is known for providing free education to the children of the country there are many state universities that provide free education for students who cannot effort this one reason why students who goes for state universities protest against private universities as it will reduce the importance of getting into state universities where you need to educate yourself for almost six years where you do not get that much of scope to gain when it comes to skills. Students going to foreign universities not only gain knowledge but they also get the opportunity to work while their studying as there are weekend classes available and they can improve their skills like communication skills.137 billion in 2008. The imports also fell down to $9. and Monash University etc.6 billion 2009 from $14. Northampton University. In the financial year of 2008-2009. In 2004. trade between the two nations rises by 128% and reached USD 2. Sri Lanka trade benefits a lot from its modern ports that were built by the British when they were ruling in Sri Lanka. By going to state universities you can gain knowledge but skills which are also important as education is gained by going to private universities which are affiliated with renowned foreign universities like Staffordshire University. In 2009.2 Analyse the impact of global factors on businesses. Use relevant facts / figures / examples as applicable.

Keeping these kind of fluctuations in mind business strategies should be developed. which determine the buying patterns these need to be developed when making strategies in line with the market situation. Because of this matter homosexuality is kept inside closed doors but with foreign influences especially like foreign universities. These factors give an insight into the behaviour. lifestyle. Because of this businesses should have room for such fluctuations in their business strategies.Businesses are not only affected by external environment but also by the competitors. It’s important for a business to know the changes in the areas of consumer protection legislation. Economic Factors: Changes in the global economy involve these factors. gender and nationality etc. health and safety and employment law etc. 60 . wage rates and rate of inflation these changes affects the business. Laws keep changing and updating over a period of time. When there are economic changes like interest rate. An economy has to face the fluctuations of economic activities. For an example promoting homosexuality is illegal in Sri Lanka as it’s against the culture and it’s found more like a sin and the people who are homosexuals are discriminated in the public and the society doesn’t accept them. For an example the demand for hybrid cars increased so the government increased the taxes for hybrid cars. Providing opportunities to make profits to the businesses we need to set our living standard high which would ultimately imply the increase for product demands. Recently at the 2016 budget that was declared at the parliament had a few changed done under consumer laws. In case there’s a decrease in demand then the prices decrease too. The changes in the structure of the population is greatly influenced by the patterns and in a consumer’s lifestyle. multinational companies like unilever and franchise like delifrance put up in Sri Lanka. were able to buy luxury things like especially vehicles for a cheaper rate more like tax free. Global factors that influences the business are legal. taste and lifestyle patterns of a population. If you take milk powder as another example when the demand for milk powder increases then the price of a milk powder also increases. This sort of cultural changes happens because of international influence in Sri Lanka. When a demand for a product increases then the price of that product also increase this happens when an economic activity arises. Social Factors: This factor relates to making changes in the social structures. it’s stated that the special permits that granted under different schemes. When designing business strategies in the global environment it’s important to keep in mind the social and cultural differences that vary from country to country. environmental legislation. For a successful business management consumer religion. and the foreign people coming to Sri Lanka and living and working here has given a lot of scoop and it has given a kind of an opening for all homosexuals to come out in public and the younger generation is embracing this new trend with open arms. political. Legal Factors: Influence of business strategies have led to make changes in the government laws and regulations. These critical changes of age. technological and economical. While developing a business strategy it is important to understand about these factors too. According to this permit scheme parliamentarians and doctors etc. language patterns are very important. So by cancelling this permit they have to buy any luxury good by paying all taxes. For a successful business operation when a particular situation arises the business should have the capability to anticipate the legal issues involved and it’s important that the business knows because of which changes in laws will affect the behaviour of the business. When there’s an increase in demand but a lower interest rate then businesses are encouraged to expand and take risks. including to parliamentarians will be cancel. social.

Political Factors: This refers to the government and government policy changers. rules and regulations applicable for consume protecting in Sri Lanka The Consumer Affairs Authority Act was passed in the Parliament on 9th January 2003. In Sri Lanka technology is not in higher scale unlike in UK.30am to 1. Political arena has a big influence on the regulations of businesses. some private companies work only the whole week from Monday to Friday but they also work half day on Saturday’s from 8. Technology helps organizations to gain competitive advantage and it’s a major driver for globalization. It came into force with the establishment of the Consumer Affairs Authority. and spending power of consumers and other businesses. Because this advent of modern technologies and technological factors have gained impetus in the business arena.3 Identify laws. 2. Businesses need to consider the stability about the government policies and political environment on the economy etc.00pm but they decide that private sectors will work only from Monday to Friday and no working half day on Saturday’s. And also they reduce the working hours of the private sector. 4. Information can be securely shared by means of databases this enables a vast cost reduction and improvement in services. For an example the technology in UK is on a much higher standards than Sri Lanka the reason for this is because Sri Lanka is a small and a developing country which has just come out of war and resources available are very limited but on the other hand UK is a large and a developed country and they have unlimited resources. By doing this it helps the business to reduce cost and develop new products. When designing a business strategy organizations must consider if the use of technology allows the firm to manufacture products and services at a lower cost and also now organizations can select new modes to do distribution with the help of technology. Technological Factors: When businesses adopt new innovations and inventions these factors influence the business strategies to provide business opportunities. To operate businesses political factors greatly influence. This has a significant importance off late. Communicating with customers all parts of the world has proven to be easier with new technology. technological products can be produce (Manufactured) in UK but technology in Sri Lanka is not in a higher scale so we need to bring down materials from other foreign countries in order to produce goods. The Consumer Affairs Authority comes 61 . For an example at the budget proposal they provided few bonanzas to the public sector while proposing a Rs.500 salary increment to private sector employees. To stay competitive in the market organizations need to consider the latest relevant technological advancement for their business. who were not paid the salary increase proposed in the previous Budget.

The new act repealed the following acts. Business environment is important for an organization to identify the weaknesses and threats. It has been designed to protect the interest of the consumers. A firm maybe strong in certain areas and it may be weak in some other areas.01 of 1979 Fair Trading Commission Act No. CONCLUSION As a conclusion. business environment involve internal and external environment. Consumer Protection Act No. This helps an organization to reduce the risk of getting failure in their 62 .under the purview of the Ministry of Cooperatives and Internal Trade. The firm should identify weaknesses and threats so as to correct it as early as possible. The Consumer Affairs Authority was established with focusing attention on the consumers in the present day context of the new economic order and trade procedures. Both the goods and services are covered within the ambit of the Act. with some innovations.01 of 1987 Control of Prices Act (Cap 173) The CAA Act consists with following parts: Part I – Establishment of the Consumer Affairs Authority Part II – Regulation of Trade Part III – Promotion of Competition and Consumer Interest Part IV – Consumer Affairs Council Part V – Fund of the Authority Part VI – Staff of the Authority Part VII – General Most of the provisions of the repealed acts. It safeguards the rights of not only the consumers but also the traders who are subjected to injustice. have been incorporated in to the Consumer Affairs Authority Act.

com/essays/commerce/the-purposes-of-different-types-of-organisations-commerceessay.3+Organizational+Objectives 63 . where. Reference http://www. Different organization develops different strategy in order to respond to the environment of their organization.ukessays. PEST analysis and Porter’s Five analysis is used to find out the external environment.com/1.wikispaces. the ways to achieve objective and competitive advantage. The business strategy includes Ansoff’s Matrix.operation and development in new product. value chain analysis and SWOT analysis is used to find the internal environment of an organization. Strategy is about the direction in which the organization is going.php https://ib2-business-p7. satisfying the needs of stakeholders and responding to the environment. Boston Consulting Growth Matrix (BCG) and Porter Generic Competitive Strategies.

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